What Not To Do With Rs 10 Lacs

I have just come back from a trip to my hometown and this is the reason I could not update the site for last few days.

During my stay at home, something interesting happened when I had to accompany a family member to the Aadhar Card registration center. Registrations take place at many places like ones nominated as permanent centers by the government, ones which are temporary in nature and others which are set up in partnership with private companies operating in technology and financial domain and having existing branches at suitable locations.

The center which I visited was setup in partnership with a well known private company which is involved in share trading and financial services. One section of the office was dedicated for Aadhar registration and rest for normal trading and financial services related operations.

I was waiting for our turn when I heard 2 employees of this private company trying to convince a middle aged guy about the merits of investing for long term. Being a self-confessed long term investor, I was naturally attracted towards their discussion and decided to overhear them for a while.

The two salesmen were pitching a product to this guy with following simple claim:
Pay Rs 10 Lacs today (in 2014) and you will start receiving an assured income of Rs 1.5 Lacs every year from 2024 onwards till the time you die.

Simple and easy…

The potential customer seemed attracted to the simplicity of the statement and big numbers and claims of ‘assured income’ and started asking what(s), how(s) and when(s) about the scheme and the company which was managing the scheme.

Now both salesmen took this person away in one corner of the room (picture below) and (probably) started showing him vivid presentations about the potential riches which this 10 Lac – 1.5 Lac scheme had to offer.

Policy Agent Fool Investors
Salesmen Explaining the Benefits of Product/Scheme to the Customer
I am not sure what more these guys might have told him… but after about half an hour, I saw these men shaking hands with the customer and appreciating him for his wise and quick decision.

Now I don’t know what this product (or scheme) was, nor did I make any effort to enquire about it. So, in case I get my assumptions and calculations wrong in rest of the post, please correct me by posting a comment. I will promptly correct the post to reflect changes.

So lets see…

Suppose you are the customer being persuaded by these salesmen…

But instead of buying this product, you decide to put Rs 10 Lacs in fixed deposits for 5 years. I checked a few bank websites and found that 5 year deposit rates are close to 9.00% per year.

Now the scheme/product offered by the people promises Rs 1.5 Lacs every year after 10th year.

So what would you get if you decided to put your money in Fixed Deposit for 10 years (two back-to-back 5 year terms)?

I did some basic calculations as depicted below:
10 Year Fixed Deposit Return

As evident from above calculations, using something as simple as 5-Year Fixed Bank Deposits, one can earn more ‘assured’ yearly income than that being promised by the scheme which these 2 salesmen were selling.

And I have not even considered the tax savings which you get from putting your money in 5-Year FDs. Assuming your only contribution to Section 80C is through these FDs, a sum of Rs 1.5 Lacs would be eligible for income tax exemption.

Now, a sum of Rs 40,000 yearly (difference in yearly incomes from above two scenarios) may not be much for a lot of people. And probably this difference would reduce further when we have more information about the product and are more realistic about our assumptions.

But the point which I am trying to drive home is that sometimes the facts are clearly in front of our eyes (in form of simple numbers) and we do not see them because of our ignorance.

But a little common sense and a sensible approach (which atleast questions the motives of people selling financial products, claiming ‘assured’ returns) can go a long way in creating long term wealth.

There may be other such assured returns kind of schemes which your so-called financial well-wishers might ask you to consider. But remember, its your hard earned money and not theirs. It is entirely upto you whether you really understand the scheme/product or are just blindly taking some action for sake of taking action (and showing off that you care and more importantly, understand about long term investing).


  1. Icici also has similar schemes when I showed them these calculation and pitch for FD to customers they started acting dumb…. A few seconds ahead they were the smartest guys in the room…

    In the above calculation point to note is you still have the complete principal amount at your disposal…

  2. Great breakup – my 2 cents 1) Your proposal works great for person with good financial discipline – most times people who have principle at their disposal dont have long term view/commitment and break up thier principle too fast. That is why products like PPF works in India. 2) Interest risk is discounted – may not be 9% over next few years. 3) Effort to manage/track/chase better returns.

    Most Indians are risk averse and like simple products they understand – assured returns are always attractive to them. For them Bird in Hand is worth more than 2 in the bush.

  3. Welcome back from your home town visit. Looks like your eyes and ears are open everywhere to find the content for your blog. Very interesting article.

    I do see most of the LIC agents adopting similar style of marketing. They always tell if you pay premium of X for Y years, you would get Z which sounds fancy to the customers.

    You would find millions of customers who never bother to ask what is the rate of return on yearly basis or comparision with other products to find the pros and cons.

    Knowing me, my HDFC bank brach Manager has never dared to talk to me about any product.

  4. Hi Sachin
    I have intentionally not done it…But in addition to the organisation selling the product/scheme, one should also be concerned about the companies which are conceptualizing and creating such products.

  5. True Puneet…
    And as already mentioned in post, as we change assumptions (like tax rates, interest rates, etc), the difference between the two scenarios might reduce….
    But I just wanted readers to know that there is an army of salesmen ready to sell not-so-profitable-as-claimed kind of financial products to them…and they need to be cautious about such people and products

  6. Hi Mark
    Lack of financial discipline is one of the biggest reason why people don't become rich easily.
    And you have correctly identified the issue when you say that people having disposable principal generally end up using it un-intelligently and disturb the process of compounding.

  7. Not,maybe. I am dealing in the policy sold to me by the illustrious Kotak Mahindra Bank.Their Banking licence should be cancelled , SEBI should take stern action againist them . Here the victim is penalized & their employee goes scottfree.Mr.Mukesh Sharma of Yusuf Sarai Branch, New Delhi.

  8. And why do you think that the company should be banned? Didnt they show the investor what you would get from investing in this product? If the investor could not find the potential of his money it is his/her fault. I feel for the investor's good, SEBI/IRDA/all-regulators-in-the-world should ban these investors from investing in any product. No of misbuy is exactly equal to number of Mis-sell 🙂

  9. I think one important tool is to:
    (1) ask for the product brochure to be provided (or anything that is written, rather than oral) and
    (2) let the salesman know that you will defer the decision to another day to “think over it”

    In usual cases of such misrepresentation, no one will have a brochure or provide anything in writing … this small trick has saved me many times. And in the rare cases where something has been provided in writing, the deferral of the decision has saved. Never take decisions under time pressure or emotional pressure.

  10. Yes, I think punitive action should be taken aginist Kotak Mahindra Bank. As they have treated me so shabbliy.Since you who ,advocate investor should have seen it coming. In Ms Suchitra Krishnamurty;s case the same thing happened. Why should an investor take all the heat. While Insurance Company washes its hands off,despite knowing fully well the mis-selling was wrong / unfair practice on their part. I said SEBI should intervene. May be then Kotak Mahindra Bank would come down from their pedestal. Just like HSBC in Ms Suchitra Krishnamurthy's case. It is very to preach Mr.Symamantak.

  11. I think you are correct in your observations. Here,I would also like to add everything – lock in period, returns after the lock in period should be given on a Company letter head, seal etc.Kotak Mahindra Bank stated that they are not responsible for any of the promises made by their employee ie; Mr Mukesh Sharma , Yusuf Sarai Branch, New Delhi.

  12. I think you have made a valid point regarding intentional deferring of the decision.
    When making such big number decisions, its best to sleep over the decision for a few days before taking a call. If an opportunity like this one is really that good, then it would remain 'that good' even after few days.
    And as soon as one hears salesmen using phrases like 'Once-In-A-Lifetime-Opportunity', one should become cautious and defer the decision for a while and consult those who know about such schemes and products and have not benefit if you buy the product.

  13. A Mr. Mukesh Sharma ,Yusuf Sarai Branch, New Delhi ,duly,employed with Kotak Mahindra Bank approached me. I told him about my goal. The lock in period according to my said goal should be three years.He sold me a product,after a lot of persuaian My second condition was also that it should give me an return of 8% annually which he replied in positive .I attribute to my naiveity also that I trusted him blindly. The product that he sold me turned out to be a dud. Even his colleague said you should have put the money in a mutual fund.The said amount was single invest. Now.Sir please tell me WILL IT GIVE A RETURN OF 8% after its lock in period is over. Lastly.on carefully reading the policy . I found out that I have keep the policy for TEN years.While I suffer. No Action is intiated or taken against Mr. Mukesh Sharma. I admit my naiviety but I am disappointed with Kotak Mahindra Bank while dealing with a clear case of mis -selling. And of washing its hands.

  14. As long as there are fools there will be crooks. Let us thank Stableinvestor who has shown us that common sense should be used for investing and keep the crooks at bay.

  15. as a late reader of this article (and a new one to your blog)… I would still advocate in favour of that product he took… the reason is LOCKING YOUR MONEY AT HIGHER INTEREST RATES. simple.
    FD rates as opposed to 2014 are now hovering around 6.5%! By 2019 when first 5-year FD block would have matured; my guess is it will be down to 6%

    Lets say the guy was 30 year old, and starts getting 1.5lac from 40 till 70 (average age in India too is going up, currently for men it is 67).. the return from date of investment till 70 (40 years) is locked @11 (30yrs * 1.5 lac =45lac)!

    not bad at all for a fixed return product!!

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