5 Products to Avoid in Financial Planning

Created on 09 Feb 2021

Wraps up in 4 Min

Read by 2.1k people

Updated on 12 Sep 2023

Avoiding pitfalls and dodging away from the rough balls is something that we, as investors, should learn and be aware of. While the art of investing does not involve any rocket science, it is essential that one is aware of the various risks associated with each product. 

As you look on ways to build up your portfolio and wealth, you should also have a keen eye to avoid visible pitfalls. So why not take a look at certain products which many of us don’t quite understand but commit the mistake of investing in. 

It is important to note that while these products happen to be a wonderful investment avenue, it may not suit everyone’s profile.

5 Financial Products Most People Should Avoid

The top 5 financial products which every investor should give a second thought before putting in their hard-earned money are mentioned below:

Unit Linked Insurance Plan (ULIPs) 

Unit linked insurance policies are one of the many products which investors find a hard time dealing with. This is a wonderful option to ramp up your investments as it offers a 2-in-1 bonanza for you. The amount you put into ULIP is divided into two and are deposited into the life insurance premium and investment vehicle. The investment vehicle might be equity-oriented or debt-oriented or a combination of both, with the returns relying totally upon the performance of the fund. 

Well, that looks simple! So where is the problem? 

For a budding investor, trying to navigate your way through such investments can be tiresome. You will have to constantly track your Net Asset Value, returns, etc., to ensure that the maximum benefit is reaped. The charges involved in the investment can leave you awestruck. While it generates huge returns, you will need enormous patience and time to let it grow. 

Apart from that, the lock-in period of 5 years and switching charges makes these investments even riskier. Hence, unless you are someone who has a high-risk profile, this is something you should stay out of. 

Regular Mutual Funds 

Though we know what a mutual fund is we are not usually aware as to what a “regular mutual fund” is. Usually, when you directly purchase a fund form the asset management company, it is termed as Direct mutual funds. On the other hand, if you deal in with brokers, distributors or any financial advisors for your investment into a mutual fund, then it will be called as Regular mutual funds. 

As said earlier, you will be inviting additional costs as you are dealing with brokers and advisors. This ultimately hypes up the expense ratio of your entire investment. For someone with a good idea of the market and enormous knowledge, such investments can churn out good profits. But for a newbie, there is a high chance that you might end up losing a lot of your earnings in the form of charges incurred. To add on, the NAV is also not as attractive as it is in a direct plan.

So the next time you come across a plan like this, be cautious. Unless and until the advice you are getting or the service received is invaluable, it is safe enough to opt for a direct one. 

Credit card loans 

One of the scariest nightmares which every working individual faces are the credit card bills. And as an investor, irrespective of your risk profile, a credit card must be chucked out of your life. 

While we may be tempted to use one as soon as we purchase something, the shortcomings outweigh the benefits, thus making credit cards, not a viable option.

The ease of use associated with it is one of the main drawbacks which haunts every user. Apart from that, the interest charged is also enormous in most cases. Any delay in repayment of the amount also invites several charges making you forgo your hard-earned money in no time.

Improper usage or bad repayment trends may result in a negative or lower credit score, which, in turn, might affect your loan getting chances. Further, the extra interest charged annually is also another reason to avoid this.


Digital Gold 

Gold is probably the one place we put our money in without putting in a second thought. Gold investments can be made in several ways, and one such way is in the form of digital gold. As the name suggests, digital gold is bought online. The seller keeps it in a secured vault on behalf of the buyer. Looks safe, doesn’t it? 

But wait, there is a catch. The maximum limit for such kind of investment is 2 lakh on a majority of investment platforms. Also, the absence of a regulatory body like SEBI to take care of its actions makes it quite unsafe for investors.

Though it offers ease of transaction, these investments are only for a short period. After the end of the investment period, you will be forced to acquire them in the physical form or sell it, whichever is more beneficial. Due to this drawback, a lot of people usually avoid digital gold and choose Sovereign gold bonds.

Other Unregulated Products 

Apart from the above, a lot of unregulated products are available in the market. Though they are attractive with some good returns, the risk associated with them is also high. They also escape the watch of market regulators and hence, making them vulnerable for malpractice. The liquidity of such products will also low. So it is always advisable to stick onto their counterparts that are regulated. 

To Conclude 

While you must try and maximise the returns, it is also important you don’t get stuck with some random, unknown investment products. The market is filled with opportunities but also with threats. 

As an investor, try to move towards good investments and stay away from dangerous traps. Proper investments will help you in reaching your goals faster and sooner.

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Rishika Mukherjee

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Mukherjee is an avid reader and loves to write as much as read. She is the youngest of all but handles chores like a 50-year-old woman. She takes a lot on her plate and somehow, eerily manages to get the job done. As Hazel Grace stated, she could read a good author's grocery list, and so would Miss Mukherjee. 

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