An agent or a financial planner

An agent and a financial planner

Suppose you are about 40 and currently have Rs 6 lakh to invest. You are holding cash and are not sure what to do with it. The stock market is volatile and hence you want to stay clear of that. But you want good returns on your money, naturally. You earn about R 12 lakh per annum after tax and your monthly expenditure is about R 50,000. You meet and summarise the advice provided by two advisors— Advisor "Mr Cool" and Advisor "Mr Smart".

Advisor 'Cool'

Here is an opportunity to invest R 6 lakh in this fantastic product. Forget the risk and volatility of the markets. Your money is safe, return is secure and everything is tax free. Moreover my advice is free. The financial planning I will do for you is free of charge. Let me focus on your life insurance and retirement planning to start with. You need about 10-20 times of your annual income as life insurance hence let us go with what you are comfortable with.

I suggest R 1.5 crore. This is a beautiful plan. You just invest your R 6 lakh and at the end of 25 years you get R 3 crore tax free. After that, for the rest of your life you get R 2.5 lakh per month income and whenever you die, your capital is given to your dependents.

You cannot lose out on this opportunity. This product may be withdrawn in a few weeks. This is your final chance - you must act now.

Analysis of Advisor 'Cool'

Life insurance could have been R 1.2 crore as well but advisor wanted to capture the entire R 6 lakh as premium and hence recommends R 1.5 crore. No logic for this figure. Very smartly he has not clarified that R 6 lakh is the investment "per year for next 25 years." By investing R 6 lakh p.a. for 25 years you can definitely get 3 crores - that's about 4 per cent yield. What is the big deal? If you put your money in a bank deposit or bond fund earning 8 per cent for 25 years, you would get R 5 crore. 'Mr cool slyly assumes a 10 per cent return on corpus of R 3 crore via fixed deposit. He is using today's rate and telling us that this rate will be available after 25 years as well and will continue till you live.

... contd.

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