Money Matters

  • Ifthikar Bashir
  • Publish Date: Dec 23 2017 8:39PM
  • |
  • Updated Date: Dec 23 2017 8:39PM
Money Matters

What are ULIPs? How good are they as an equity investment option?

– Ume Laila, Hawal, Srinagar


ULIPs are unit-linked investment plans, essentially investment plans that come with some insurance. But if they are investment plans, why are their past returns hard to find? A quick search on most investment websites would tell you about the best-performing mutual funds – equity, debt or hybrid – over the past day, week, month, quarter, year, and so on, but no ULIPs. I have asked many experts about this but I am yet to receive an answer. Which is the best performing ULIP of the last five years? No one has been able to give me that answer. This is not surprising given how complicated the structure of an average ULIP is. Hence, if you want to invest indirectly into equity, it is best to stick to mutual funds.



I have purchased a few endowment policies from different insurance companies. How good are they for long-term investing?

– Aijaz Ahmad, Khayam, Srinagar


Endowment policies sold by insurance companies are a popular instrument for investing as well as saving tax. One reason is that they are deemed to be safe. But have you ever asked what returns these policies actually give? If I may take the liberty of asking a slightly technical question here, “What is the internal rate of return of an average endowment policy in which a person invests for a period of 20 years?” You will be surprised to know such data is not available. But from what I understand, endowment policies give a lower rate of return than inflation. In short, endowment policies are essentially a cheap way for the government to raise money, given that most of these policies end up investing the money raised in government bonds. The bottom line is that if you want to finance the government, please go ahead, but there are better ways of earning decent returns on your investment.



Can I get low interest rates on my loans and simultaneously earn higher interest rates on my deposits?

– Tahir Ahmad, Barbarshah, Srinagar


This is something many people don’t seem to understand. People want low interest rates on their loans, but they are not happy with low interest rates on their deposits. Banks fund loans by raising fixed deposits. They can’t cut interest rates on their loans unless they cut interest rates on their deposits. It’s as simple as that.

An easier and convenient way out would be to invest in a range of financial instruments that offer predictable returns for a particular tenure such as Fixed Maturity Plans, or FMPs, which are close-end debt schemes with a fixed maturity date. They invest in debt and money market instruments maturing on or before the date of maturity of the plan.



I am interested in investing in direct equities. How good is it to chase and follow market experts?

– Tariq Bhat, Chadoora, Budgam


A common mistake a number of investors make is to look at what top market investors are buying. Many investors closely follow and track what new stocks these investors are buying and follow suit by buying those stocks. The rationale is hopping on the bus to quick riches. This is often not the case in the real world. Some of the reasons why you should not follow market experts blindly are:

You don’t really know why the expert has bought a particular stock. Is it because he likes the company or sector or is it just the valuation?

The investment may be just a tax-saving strategy.

The expert could have been taken over by market exuberance.

The expert could change his position at a moment’s notice, catching the public unawares.

The expert might simply be wrong in buying that stock.


My suggestion is to do some research yourself, find out how successful investors go about picking stocks and seek guidance from a reputed equity expert. Lastly, go with the stocks of companies that have proven themselves resilient instead of chasing extra-normal returns with firms that have yet to prove themselves. Many just don’t.



There are many real estate companies operating in Kashmir. How secure is it investing in real estate through such companies?

– Riyaz Ahmad, Batamaloo, Srinagar


As they say, roti, kapda, makaan are the basic necessities of life. That no matter where the economy goes, these essentials will be required is a no-brainer. That said, real estate companies have earned a bad name because of their fragility and delays in completing projects. This has led to projects stalling and costs escalating. With the Real Estate Regulating Authority also not living up to the investors’ expectations, one needs to beware and follow a path of due diligence.