Investment - medium/channels
My dad's friend helps people invest money into Mutual Funds, Bonds, insurance, etc. He says that he is incentivized by the company whose assets he sells. And, from us (customers), he doesn't charge any commission. So, it's a bonus for us that we get guidance from him at without any additional cost. Is this true and a standard practice? Because there are many digital investment platforms these days - Zerodha, Groww, INDMoney etc etc.
At least for mutual funds, your dad's friend would earn his commission via the expense ratio that every mf house has for each fund. For the uninitiated, there is a direct mode of investing and there is a regular mode. Regular mode is for the agents, brokers, and the expense ratio which typically ranges from 0.1% to 2.5%, is how they earn their commissions. For a mf where direct mode (where you invest directly) has expense ratio is 1%, out of every 100 Rs you invest only 99 rs will be invested. For a regular mode though, expense ratio is likely to be as high as 2%. Meaning only 98 rs will be invested and 2 rs will be split between mf company and the agent.
Same is the case with insurance. They have huge incentive to sell only those policies which earn them high commission. At times these commissions can be as high as 25-30% of your premiums.
Moral - Stay away from friendly neighborhood uncle/aunty who is selling you insurance. Do your own research and invest directly. And do not buy LIC policies, the money will never outgrow inflation.
Heya
Student
9 months ago
Never buy lic, my dad bought lics many years back and their terms are beyond imagination..
lime
Student
9 months ago
I briefly interned with a big Financial Services firm, they sold your usual Bonds, MFs, Equity and Insurance products.
They might carry you through some technical jargon but let me tell you this in most cases they are selling stuff that the Insurance Company's representative is pushing and the firm in the process gets paid a certain commission for every insurance/product you sell.
The firm where I worked basically also had various competitions among other branches, so say in a particular quarter whichever branch sells the most of a particular Mutual Fund NFO will get to travel abroad or something like that.
The issue here is ethics, if I'm incentivized with a foreign trip and all I've to do is sell insurance/MF then obviously I'll be overlooking the customers alignment with the policy.
Again I'm not implying your Uncle does that. But just so people here know that Agents usually have sales targets(SUPER SUPER STRICT TARGETS)/ major incentives pushing them hence they more often than not are not operating in your interest. Always try to take a second opinion.
I usually prefer buying insurance from the agent (someone known), as in case of emergency understanding the complex text is last thing you want to do. Insurance is such a tricky, complex product.
For MFs/Bonds, I would not prefer to stick with a single fund house. To give you an example, Pre-2019, Axis had top-rated, category leading MF products. As of 2023, axis has lost the team, edge over others.
AmbitiousChap
Stealth
9 months ago
Great suggestions! For Mutual funds investment, which one is better - Groww or Zerodha or INDmoney? Does it really make any difference?
AmbitiousChap
Stealth
9 months ago
@DwightShrute - request your insights here
DesignTinker
Stealth
9 months ago
MF brokers make money in commissions; the expense ratios of such funds are higher when compared to direct funds (when you buy directly via the website/app of fund houses or apps like INDmoney).
I also do that. Just check if he is knowledgeable enough or simply reading out what is available on brochures already. About the companies you mentioned they depend on both payouts from other companies and also cross selling.
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