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Mismatch in selecting financial assets? Here’s how one can avoid mistakes!

Updated: Feb 22, 2022

Investing has been one subject that is always considered as complex. Investing in financial assets has been one area where the awareness is considerably low in India. This low awareness leads to organisations or individuals taking undue advantage to mislead the investor into wrong financial instruments. To attract a client, having little knowledge or no knowledge of financial assets, the sales-staff literally commits a ‘moon.’ The end result is a mismatch of what is being offered and what the investors had expected (or committed); results in the investors shying away from investing more in financial assets.

It is easier to opt for physical assets where they have been investing traditionally. That is one of the major reasons why India, despite being one of the most regulated financial markets, has a slow penetration of financial assets. However, for a few such people one should not blame the whole financial investment sector. We have the Securities Exchange Board of India (SEBI) who takes every possible step to keep the retail investors' interest alive and organisations like Association of Mutual Funds in India (AMFI) are taking efforts to increase the financial literacy and awareness about the financial assets.

Lack of access to the right network and information

People are misled all the time and across industries. Such practices exist and especially in the smaller cities where the people are relatively unaware about the investment in mutual funds and equities. It would be wrong to term it as a fraud – but false commitments result in mismatch of expectations and actual returns generated. This happens especially in structured products or may occur in investments with lock-in restrictions. Further, the investment documents are so lengthy that no one cares to read it in full and this becomes a major drawback later.

It is true that regulators keep a constant watch on such activities to keep the investors safe. However, prevention is better than cure. The same is applicable in case of financial investment too. With a few cautious steps, such false commitment can be countered and major losses could be averted. One just needs to follow these 7 principles:

  1. Never ever sign the document until it has been read carefully! Just because the documents are too lengthy, we tend to sign the documents wherever the agent has put the cross mark. Avoid that, please always read the documents carefully to understand the hidden clauses. Ask more questions. Don’t feel shy as one may feel like asking inane queries. Remember, it is hard earned money and every investor has got right to ask questions. If we can do some research while buying a smartphone, then why not mutual funds or investments? If one asks questions while buying an depreciating asset – why not when making an investment to generate returns for the future.

  2. Analyse performance track record Always read and try to analyse the past performance of such financial products. If it is a newly launched product, try to understand the complexity of the same. It is true that past performance of the company is not the guarantee of future returns. However, tracking of performance track record does only mean tracking returns generated. It also involves the other parameters like fund manager performance, other schemes managed by him, how long the fund has been in existence and most importantly the quality and size of asset management company (AMC).

  3. Alignment with financial goals is important While generating returns is an important parameter, alignment of the mutual fund scheme with one's financial goals is equally important. For instance, if one invests in equity linked saving schemes (ELSS) or unit linked insurance plans (ULIPs), expecting to meet the short term goal, it won’t be able to attain the desired result. In other words, focusing on financial goals is important and not on how much more profit the structured products can generate that are offered by the sales person or the financial advisor. While it may generate returns mentioned but the risk associated with it could also be higher.

  4. Avoid - ‘My friend purchased it, so did I’ Do not purchase the product blindly just because one’s friend or relative has purchased it. Please remember their risk appetite and one’s risk appetite is different. So do not fall prey to gimmicks from the agent that their friend, relative has purchased from the mutual fund scheme and hence they should also buy.

  5. Try to understand self need, not what agents get as a commission Usually the agents tend to recommend the products that offer higher commission to them more than considering what one’s financial goals are. Though it looks odd, always cross-question, how much commission they generate through the product sold to their client? One has every right to ask questions regarding the commission earned because it is paid out of investor’s money. If in any case doubts arise regarding the higher commission being the prime reason behind recommending the mutual fund scheme to them, it is advisable to avoid such investments.

  6. Always keep track of the investment An important aspect of investing is keeping a regular track of investment. Usually people invest and don’t keep track of it. They forget. Regular tracking does not mean watching it daily. Regular tracking means in the last quarterly review of their portfolio and investments. This helps in understanding if the investment is moving rightly towards desired results.

  7. Always opt for a registered agent Investment has become a lot simpler with the help of technology. Therefore, if possible try and opt for a direct way of investment. This not only helps in reducing the expenses, but also betters the long term compounding result. While regulators are in place, it is now necessary for all intermediaries to get registered. So, if one is not comfortable with the direct route of investment, opting for a registered intermediary always provides a comfort level.


Conclusion: With financial investments considered complex there is a possibility of mismatch happening between what an investor needs and what the advisor is recommending. However, if investment is made keeping financial goals in mind – it is easier to avoid such mistakes.

Pro Tip: Ask questions. Ask as many questions one can ask to understand the offered mutual fund scheme in a simpler manner. Remember, if someone is not able to make it simpler, they don’t understand the subject in detail.

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