Akshay's Minutes Analysis

How to avoid falling prey to mis-selling of insurance policies

Here are some of the common ways of mis-selling policies to customers:

It’s a red sigh if the policy benefits are not explained clearly to you. Agents have to explain the policy benefits and features accurately to the buyer. Hence, if you are still unclear about them, and the agent has not explained to you the policy features and benefits properly, and refuses to explain further, know that there is something wrong. Keep in mind that you will be paying the premium for getting benefits, which should be explained in advance.

There are agents who exaggerate, distort, and also state false promises to make their policy show attractive rates of returns to the buyer. Hence, experts say customers be aware of such fake promises.

Some brokers and insurance agents promise that insurance plans give better returns than bank fixed deposits and some other investment avenues. If you’re told similar things, then know that it may not be true. Industry experts say promising insurance plans giving better returns than bank FDs is one of the most common ways of selling insurance. Hence, do not fall for statements like – an insurance policy is a safer option and gives better returns than an FD. Also, keep in mind that insurance policies and savings/investments are entirely different instruments.
They should not be mixed or compared.

Another point where many buyers are mis-sold policies is premium payment. Agents not only exaggerate the benefits of the policy but also give misleading information on premiums. While buying a policy, commit to a premium amount that will be easily payable by you. Till the time a policyholder pays their premiums on time and for the full term of the policy, any insurer is liable to honor its side of promises made in the product. But if the policyholder has not paid the premium for the full term, the claim process changes. The insurers could also charge additional charges.

The claim procedure has mostly to do with the health and accident insurance policies. Policyholders need to know from their agents while buying a policy, exactly under what all circumstances can the policyholder make a claim, what type of claim is payable, and what is not. While mis-selling agents give the impression to the policyholders that anything and everything is covered under an insurance policy, which is not true. All insurance policies have exceptions. Hence, it is better to find out under what circumstances or conditions will the claim not be payable.

HUL

What is future contract, margins, open interest(OI) , price and volume, price and OI, MWPL

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Primary and Secondary Market


There has been a big dilemma on which one is better, from the primary market and the secondary market. Basically, both of them share the same aim, helping companies to get capital funding. But, the major factor that will differentiate both of them is a process used for collecting the funds.

Primary Market –

The primary market is a market where the companies issue new securities with the purpose to attain capital. Firms and government institutions will gather their funds from this market by issuing bond and stock in a new issue market. And they will get equity capital by stock issue and the debt finance via a bond issue. This funds raising happens through Initial Public Offering or IPO. These securities are directly sold out to the investor. He is called the shareholder in such case. In return of these funds that investor contributes, he’s issued the share certificate that will represent interest for the company.

The security price is quite stagnant and on the face value in a primary market. Securities are available just for the short time frame, or issue window that are for some days. Here major preference will be given to the large investors who will buy more securities at one go. But, the common man can invest in IPO as the retail customer.

Secondary Market –

In the secondary market, the securities that have passed already through the primary market and issued will be traded as instruments. The instruments like bonds, stocks, options, and futures are traded over here. When the security is bought in a primary market and investor opts to sell it out, it comes on a secondary market for many other investors to purchase. The price of this security will be quite different from its face value though that is based on the performance of the market security. Thus, market performance and forces of the company decide the share price in the secondary market.

In secondary market the trade is done with the stock exchanges such as Bombay Stock Exchange, National Stock Exchange, Shanghai Stock Exchange and more where value of a share will be affected by an index of this exchange.

Introduction to Stock Market

As the name says, stock market is a market for different stocks (or equity). Let’s look at it as a shop where you will go to buy the stock and sell them.

To understand it better with an example of the daily grocery items that you will shop for. All the sellers gather at a common place to sell their product and buyers will also go there in order to get the complete range of the products to select from. For some reasons, you will not go looking across the town for a particular product or seller; similarly, if you are looking to buy the shares of say TCS, you can’t go to the company directly. Besides, it can limit your choices to opposite from. After all it is your hard-earned money, so you need to make the wise choice on which product or shares to buy.

So for you to make most of your hard-earned money and seller wants the best price, both of you have one common platform of ‘stock market. Electronically stock exchange gets your ‘buy request,’ so that it can match with the investors who are looking to sell this. For instance, you are keen to buy 400 shares of Maruti, and what stock market will do is, it will help you to match the order collectively with 2 sellers selling out 150, 200 or 50 shares.

India Stock Exchange –

In India, there are two important stock exchanges, one is Bombay Stock Exchange and another one is National Stock Exchange. Both these stock exchange make up the vast scene in India. Also, there are many regional stock exchanges such as Madras Stock Exchange, Calcutta Stock Exchange and many more, but the level of listings and trade are much lower than BSE and NSE.

Why only 5% investors make money in market when returns are available to all ??

One investor gets good returns from the stock while another sees a loss on the same.

To analyse this, let’s understand how equity performs and generates returns. In the long run, equity market returns depend on corporate earnings; as earnings rise, prices of shares also rise. This is a simple proposition. However, in the short term, it is the sentiment that drives the market. So share prices become equal to earnings + sentiment. Earnings are declared every three months, but share prices change every day, every minute and this happens because of a change in sentiment. One investor gets good returns from the stock while another suffers a loss on the same.

Why does this happen?

The most successful investor in history, Warren Buffett, became the richest person by investing in equities which were available for all, his shareholding list was available to all, and even today, his equity holdings and all the other information are easily available to industry experts for in-depth analysis. But very few investors get equal returns by investing in the same shares. So it's not about research, market analysis, or knowledge, but rather it's our sentiment which decides our returns. That's perhaps the reason that most successful investors talk more about behaviour and sentiments than research.

How does sentiment decide our returns?

One of the main sentiment and feeling that needs to be controlled is the fear of loss. The human mind partly processes the pain of loss of money in the same way in which it processes the fear of death. This is the reason we are very afraid of losing money. That's also the reason people get more returns from intangible assets like gold or real estate than that equities, even though equities give far better returns. The primary factor here is our own sentiment.
So, our sentiment is the key to our success as an investor. But alas! the majority of investors give more importance to research and analysis.