GAMES AGENTS PLAY TO MIS-SELL ULIPS

Some distributors and agents use spiels such as promising returns comparable to mutual funds to emotional manipulation to mis-sell Ulips. Here's how to watch out for the red flags

- Meghna Maiti

When Kolkata-based Aranya Sen, 72, booked a fixed deposit (FD) with his bank in 2022, he had no idea he was buying a unit-linked insurance plan (Ulip). It was only later that he realised that he was mis-sold a Ulip in the guise of an FD.

"It was my bank's relationship manager (RM) who lured me into investing in this FD, convincing me about its high, assured return. Only when I had put in the money, I found it was a Ulip. I do not need this. I have been mis-sold," says Sen. He opted to invest in an FD for regular income and guaranteed returns.

Mis-selling means selling someone something that is not the right fit for his/her needs. For instance, if you are going to Canada in winter and someone sells you a jacket that is just about right for Delhi winters, that is mis-selling. When it comes to financial products, mis-selling usually happens through someone you trust, which could be an agent or a distributor.

The scourge of mis-selling remains common in India. The case of Yes Bank is well known. The bank triggered the write-off of AT-1 bonds, which were allegedly sold as FDs with the potential of giving higher returns than regular FDs. The risk that AT-1 bonds carry was misrepresented to the buyers, a lot of whom were senior citizens. The other widely mis-sold product are insurance products.

Though they give guaranteed returns, the real returns after factoring in inflation are, typically, noncompetitive.

Among these, Ulips take the cake when it comes to mis-selling, with the rising equity culture in India.

"First, they provide higher commissions to agents, thus creating a potential conflict of interest where the focus may shift from meeting the client's benefits to maximising commissions," says Chethan Shenoy, director and head - product and research, Anand Rathi Wealth.