When considering an investment, these 12 critical questions will help you evaluate the product and protect your financial interests:
1. Is the Seller Qualified and Licensed?
- Verify the advisor or salesperson’s qualifications and licensing.
- Ask about their experience and when they were licensed to sell such products.
Why?
A licensed professional may be more cautious and credible, but always verify their claims.
2. Is the Product Regulated?
- Check if the product is approved by a regulator (SEBI, IRDA, AMFI, etc.).
- Note that some products, like Bitcoin or loans to builders, lack regulatory oversight.
Why?
Regulated products offer better transparency and investor protection.
3. Can It Convert Income to Capital Gains?
- Investigate if the product helps reduce your tax liability by converting taxable income into capital gains.
Why?
High tax-bracket investors can benefit significantly from lower capital gains tax rates.
4. What Is the Lock-In Period?
- Understand how long your money will be tied up and the implications of early withdrawal.
Why?
Liquidity matters, especially during emergencies.
5. What Is the Minimum Commitment?
- Ask about the minimum tenure or premiums required to keep the investment valid.
Why?
Long commitments may strain your finances if unforeseen circumstances arise.
6. Do I Understand the Product?
- Ensure you grasp the product’s features and risks without jargon or complexity.
Why?
Simple investments often perform just as well, if not better, than complex ones.
7. Is This Life Insurance or Investment?
- Distinguish between life insurance and investment products. Avoid combining the two unless it suits your specific needs.
Why?
Blending these can lead to suboptimal returns and limited insurance coverage.
8. How Do Risks Compare to Rewards?
- Assess the product’s risk-to-reward ratio. For instance, gold offers debt-like returns but with equity-like risk.
Why?
Understanding risk helps you align investments with your financial goals.
9. Where Can I Get Help?
- Identify support channels for performance issues or product-related queries.
Why?
Having accessible help builds confidence in your investment decision.
10. Can I Speak to Existing Customers?
- Request referrals to 3-4 existing customers who have held the product for years.
Why?
Hearing about their experiences offers insights into the product's real-world performance.
11. What Are the Withdrawal Penalties?
- Learn about penalties for early exits and how long they apply.
Why?
Withdrawal restrictions can impact your liquidity and overall returns.
12. Can the Product Be Explained Simply?
- Ask if the salesperson can explain the product in simple terms to your spouse or a teenager.
Why?
Clear communication indicates they understand the product and aren’t trying to confuse you.
Pro Tip to Handle Pushy Salespeople
If you feel pressured, say:
"This seems interesting. Please email me all the details so I can discuss it with my brother-in-law who works at SEBI/RBI/IRDA."
Why It Works:
Salespeople often back off when faced with the prospect of expert scrutiny.
Remember: Asking the right questions empowers you to make smarter investment decisions and avoid pitfalls. Always take your time before committing.
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