Investing your money? Caveat Emptor

Investors looking to make an investment are often so busy choosing the right option, that they can be oblivious to the basic details. This can be counterproductive over the long-term, especially if an important detail was overlooked and the same comes back to haunt the investor later.

a) the investor is too busy to vet every detail or
b) the distributor, who has the investor's complete trust, isn't very diligent in highlighting every detail.

Of the two reasons, the second one is more common. How often have we seen a mutual fund distributor who conveniently overlooks/fails to reveal important details because they were likely to impact his commissions? Compromising the client's interest is nothing new for agents; the all-important criterion for them is commissions and anything that adversely affects that is bad news even if its very important news for the client.

This author has personally come across several instances where agents have concealed critical information only because they were due for higher commissions. Two of these instances involved reputed names from the private sector. One agent representing a reputed bank appeared enthusiastic about selling an systematic investment plan for an investment amount and tenure that was very different from the minimum SIP amount and tenure as specified by the fund house.

When this was pointed out to the agent, he indicated that this was the target given to him by the bank. The author was not given the option to take the SIP for the lower amount and tenure! So between the agent's commissions and the client's interests, commissions trumped the client's interests.

The other instance relates to the insurance industry. An agent from a private sector non-life insurance company was keen to sell the company's medical insurance plan (commonly referred to as mediclaim). He showed the usual set of comparisons to establish that the medical plan he was recommending was the best.

A cursory glance by the author of the terms and conditions brought to light a critical point -- in case the medical treatment was done in a non-recommended hospital, only 95 per cent of the claim would be reimbursed. When the author brought this to the agent's notice, he pleaded ignorance. A study of the terms and conditions of some of the other medical insurance companies revealed that there were no such restrictions on claim reimbursements.

Equity markets finally snapped their 4-week losing steak and closed in positive terrain. The BSE Sensex rose by 3.72 per cent and closed at 18,115 points; the S&P CNX Nifty settled at 5,303 points (up by 3.57 per cent). The CNX Midcap rose marginally (by 0.81 per cent) and closed at 7,216 points.

Equity Funds	NAV (Rs)	1-Wk	1-Mth	6-Mth	1-Yr	SD	SR
UTI Thematic Banking	33.30	5.01%	-8.47%	42.43%	56.12%	8.94%	0.32%
StanChart Imperial Equity	16.10	4.72%	-8.41%	27.44%	28.78%	8.05%	0.20%
Birla Sun Life Frontline Equity	69.63	3.89%	-11.05%	22.91%	33.90%	7.15%	0.33%
HDFC [Get Quote] Top 200	150.45	3.86%	-9.14%	25.19%	33.55%	7.13%	0.28%
DWS Alpha Equity	73.38	3.85%	-10.99%	31.60%	39.69%	9.35%	0.28%

(Source: Credence Analytics. NAV data as on February 15, 2008.)

(Standard Deviation highlights the element of risk associated with the fund. Sharpe Ratio is a measure of the returns offered by the fund vis-�-vis those offered by a risk-free instrument)

UTI Thematic Banking (5.01 per cent) topped the equity funds segment, followed by StanChart Imperial Equity (4.72 per cent). HDFC Top 200 (3.86 per cent) also featured among the top performers.

Debt Funds	NAV (Rs)	1-Wk	1-Mth	6-Mth	1-Yr	SD	SR
Sahara Gilt	13.30	0.34%	1.66%	4.44%	6.89%	0.40%	0.03%
HDFC Floating LTP	13.30	0.29%	0.94%	4.45%	8.22%	0.11%	0.34%
Birla Dynamic Bond	12.54	0.21%	0.85%	5.77%	10.78%	0.37%	0.33%
Tata Dynamic Bond	12.96	0.18%	0.71%	3.86%	8.24%	0.25%	0.00%
ICICI [Get Quote] Pru. Long Term	16.82	0.17%	0.70%	4.30%	8.71%	0.14%	0.53%

Sahara Gilt (0.34 per cent) led the pack in the long-term debt funds segment. HDFC Floating Rate - LTP (0.29 per cent) and Birla Dynamic Bond (0.21 per cent) occupied the second and third positions respectively.

Balanced Funds	NAV (Rs)	1-Wk	1-Mth	6-Mth	1-Yr	SD	SR
Sundaram Balance	42.49	3.59%	-6.09%	24.18%	27.86%	6.08%	0.22%
ICICI Pru. Balanced	41.81	2.63%	-9.09%	17.54%	17.51%	6.12%	0.20%
UTI Variable Invest ILP	18.12	2.58%	-6.02%	5.91%	8.87%	3.23%	0.08%
Magnum Balanced	29.45	2.51%	-9.25%	6.66%	12.49%	6.69%	0.16%
FT India Balanced	42.11	2.49%	-6.25%	19.34%	24.41%	5.70%	0.28%

Sundaram Balance (3.59 per cent) surfaced as the top performer in the balanced funds segment. ICICI Prudential Balanced (2.63 per cent) and UTI Variable Investment ILP (2.58 per cent) came in at second and third positions respectively.

The 'Caveat Emptor' principle dictates that the buyer (in this case the investor) must consider all the terms and conditions before making a purchase (investment/insurance decision). Relying on the seller (investment/insurance agent) for information is obviously not prudent because his objective is to make the sale, often at any cost. It's in the investor's interests therefore to adhere to this principle while making a financial decision rather than rely completely on the agent.