One day in a coffee shop, I was having a conversation with one of my clients about how people confuse insurance with investments. A businessman overheard our conversation and approached me. He was keen to know why insurance policies are not ideal for creating wealth. I set up a meeting with him. I discovered that his portfolio largely consisted of insurance policies and fixed deposits. He had invested in ULIPs and endowment policies having sum assured of over 2 crore which were lapsed. To add to his woes, he lost a litigation case related to a piece of land he had bought as an investment.
After realizing the disadvantages of real estate as an investment, the client wanted to invest in products which offered better liquidity. I recommended him to invest in equity funds. Unfortunately, he passed away a few years later and his family had a huge loan to repay. But thankfully his MF investments had grown substantially which helped his family repay the loan. Moreover, his daughter was able to pursue higher education by withdrawing from the MF corpus.
Since I was able to switch his focus from insurance to mutual funds I feel delighted that I contributed something to their lives.
There is another case which I remember vividly. This client, a government employee, had received Rs. 8 lakh gratuity. He was keen to invest this money in fixed deposits. After a little probing, I realized that he required fixed monthly income to take care of his day-to-day expenses. I introduced him to the concept of SWP and showed him how it would help him withdraw a fixed sum at regular intervals. He invested Rs. 10 lakh in a few equity funds and withdrew Rs. 10,000 monthly. Over the years, his portfolio grew five times and the client is very happy.
I have a client who had invested his entire savings of over Rs. 1 crore in bank fixed deposits. While the client was earning decent money as interest, he was paying a tax of over Rs. 3 lakh every year. I studied his investments and suggested him to diversify his investments. I also showed him how switching to debt funds would reduce his tax liability and help him earn better post-tax returns as compared with FDs. I spread his investments in liquid, debt and equity funds. Now the client can see how he is getting more returns with reduced tax liability.