Are you a real estate expert ! ? If yes, please help a fellow reader Yakgna Kumar, who has been suffering due to his mistake by investing in a real estate project in Chennai . He wants a right direction and hence he is asking everybody help to guide him. Below is his story from our questions and answers forum
Yakgna story of Builder Cheating him !
We booked IB Greens apartment in chennai Oct 2010, Initial booking was made with promises that are not being fulfilled by IB now. They dragged the agreement signing for 2 years quoting various reasons and until now they are not clear on number of floors, UDS. Now that, they have come up with new agreement – completely one sided and no clear indication of number of floor, UDS, SBA Increase, change in carpet area/floor plan, shared club house for different phases as against separate club house and many other issues. This is clearly a Cheating case !
We have now applied for cancellation of the booking and asking IB to refund the complete amount paid for booking the apartment, IB is not responding on the details of refund but when we call customer care, they are quoting that we need to pay penalty of 5% of total sale price ! – this is mentioned in the Booking Agreement, the booking agreement also says, that agreement should be made within 1 year of the booking, if the booking is not made within 1 year of the booking IB will have to pay 9% interest … in addition to this, they have added few clauses that cancellation should not be intitiated by buyers. Now IB is asking us to sign a cancellation process which makes us to agree for penalty as per booking agreement.
With our little knowledege on real estate, we understand
1. The booking agreement is not an agreement and and just provisional booking form.
2. its been more than 2 years old and when exceeds 6 months it will become null and void.
3. As per the CCI(competation commission of India) any terms and conditions which is one sided is not acceptable and considered as Void.
4. Our refund request is not our own and because of IB failure to deliver the project intime. Till date they are not clear it will be 7 floor or 19 floor. During booking they informed 7 floors and if 19 floor your UDS is almost nil which is deviation from the booking terms.
Questions
1) what should be our step to get the refund, have you seen customers approaching with this kind of problems and how they have handled it?. we have lost 2 years since then the real estate prices have gone up, IB can cancel our booking and sell with latest price and making profit. we have already went through too much stress because of IB attitude towards us and IB billing department asking to pay the first installment without even signing the agreement and also penalty of 18% for delay in payments . we had multiple meeting with IB staff without any change in IB stand on the agreement and so we are planning to cancel. I am attaching the booking agreement snip related to the cancellation/refund from booking agreement. We are a team of buyers, we got introduced yourself after forming a google group when we had to face the problems from IB. We are stuck now, we need correct plan of action and without any further delay and stress for us. Based on your expertise, i would request you to let us know the next steps for us.
2) Will we be able to get our monies back based on the booking agreement? .. is the booking agreement considered at all after 2 years ?
3) We also think, the IB Higher Management may not be aware of the staff and local management’s attitude to customers, if there a way to escalate our issues?
Appreciate your time on reading this long mail. thanks for your support.
Please share your thoughts and Help
What do you think about this case ? Can you share what do you think about this cheating case and how this guy should move ahead, what should be his next actions ?
Today we are going to talk about MLM or Multi Level Marketing Schemes which have a pyramid kind of model. For years and decades, these kind of schemes are active and a lot of people get trapped in these Pyramid Schemes and lose their hard earned money. In this article, we will see the common mechanism they work on and their characteristics. We will also create a dummy Pyramid scheme to show you the traps & pitfalls. Before we move ahead, get this fact that we are talking about those pyramid schemes which also have different levels of people one on top of other and where one guy pays money which gets passed on as reward to another.
How Multi Level Marketing schemes work?
Multilevel marketing schemes are generally network based marketing schemes, in which a person has to add more people under him. The people obviously pay some money to “join” the business and then they add more people under them. In almost all the schemes, the person is incentivized for adding more people under them.
You all must have heard about the AMWAY business model, which is nothing, but a great example of Multi Level Marketing, while the business is legitimate and there is no fraud in it, still it also falls under a pyramid model. Even I have attended its meetings once when I was novice child :). The business model looked so easy, just pay Rs 5,000 to join the business and then keep adding more people to “business” and you get some percentage from the entire sales under your Tree. There are various ranks like Silver, Gold , Diamond etc., and the higher your rank, the more you make. Lot of people make money in it through legal way, and more you work harder , the money you can earn, but the point is , people who get in early make more money and the people at bottom struggle a lot.
Why most people lose money in Fraud Pyramid Schemes?
Guess what?! A lot of people make money in these Multi Level Marketing business models, and they become the ambassadors of the business. They flaunt the cheques and the money they make and believe me, some of them are real!. They really do make money and we will quickly see more on that, but the point is, that the majority of the people lose lot of money and struggle in these kind of get rich quick pyramid schemes. And that happens, because there is a limit to adding people. You can’t add more people in the tree after a certain point and when the tree becomes bigger, than it’s trouble point, it’s reaches a kind of saturation level when the biggest chunk of people who are at bottom lose all the money. Here is an example graph which will give you a good idea of what I am talking about.
Example of SpeakAsia
You must have heard about the latest craze called Speak Asia Online! I will really not be surprised if you tell me that you were part of it! I will not be even surprised if you tell me you made lot of money too! That might happen if you started earlier! Because then, the scam was still in the making! If you joined at the end, you were at the bottom of the tree you lost your money. This is how it worked!
A person can join SpeakAsia by paying Rs 11,000 and becomes a “panelist.” He then starts getting 2 surveys per week and getting Rs 500 for filling up each of them. That’s around Rs 4,000 per month and 48,000 per year and that was how Speakasia was promoted by its member to lure other members. This was at the start and though the amount of money coming IN was less than the amount of money which went OUT, and the whole model was unsustainable in long run, it was definitely sustainable in short term. Just think about it! Is it not easy to pay 10 smaller bakras if 100 bigger bakras join the next batch?
And after all that, it crashed! But still there are innocent people out there who claim that it was genuine and it worked for them. They are not wrong! It really worked for them and they made money, but that was part of the game. They wanted you to make lots of money so that you can bring more people in and then one fine day when they make a really big pile money that they can just vanish! Poof!
Breaking Relationships !
The biggest other bad thing about these pyramid schemes are how the relationships become sour and messed up when the person who is part of MLM tries to add all their friends and relatives into the MLM, suddenly they start looking at humans as “targets” , Here is one incident which happened with Shantanu
I know about this as I faced these offers couple of times from my very close friends and relatives. And I know how hard it was for me to tell them “I am not interested”. Those who is a very extrovert in nature and also convince people more, like insurance agents can get success. But most people are in the other side only. In fact one of relative faced very tough challenge later on when people found his scheme a scam. Anyway, I think after such articles also these schemes will come in future and again many will trap in them also.
In one other incident, one of the Fraud scheme called as “Japan Life” made someone lose his girlfriend
Long time back in 2000, my girlfriend got stuck up in a similar scheme called “Japan Life”. They used to take 80,000 Rs. and will give you a magnetic mattress. She tried to get me in as well and I was almost about to get trapped but sanity prevailed and I escaped, however since I did not join, I lost my girlfreind forever. I remember this fraud came up in Star News and I could see so many people getting cheated. This was around New Delhi and surrounding areas
Some other popular Multi Level Marketing and Pyramid businesses which were actually a scam were GoldQuest, StockGuru , UniPay2U etc etc (add more name in comments section if you are aware about them). Moneylife has also done this story on Multi Level Marketing companies in Forex trading, Have a look at it.
Jagoinvestor MLM Scheme – Lets create a SCAM Plan right now
Let me know you how simple it is to create a pyramid scheme and it will look so attractive . You all know I have written a Personal Finance Book called “Jagoinvestor – Change your Relationship with Money.”
Now here is a scheme
Pay Rs 1,000 and become a member of the scheme
You get the book FREE on signup
Make a person join the pyramid scheme and get Rs 250 for each person
You can add any number of people to this scheme
You realize that if you add 4 people to the group, you will get a 1,000 bucks and a Free Book! So it’s extremely easy for you if you join the scheme early.
Let’s say 10 people join under me.
Level 1 – Add 10 people
So 10 people will pay 1,000 each and I will make Rs 10,000 total , and I will send back a FREE book to all the 10 people. I incur Rs 5,000 expenses and make a cool profit of Rs 5,000.
Level 2 – Add 100 people
Now let’s see… Each of these 10 people persuade 10 more people under them, and 100 more people join the scheme. They will pay Rs 1,000 each to me;, that means Rs 1,00,000. I will spend Rs 50,000 for the 100 books , and I will be left with Rs 50,000. But out of this 50,000, I need to give a share to each member at level 1, for 1 person the incentive is Rs 250 , so for 10 people, the incentive is Rs 2,500 for each person at level 1, and because there are 10 people at level 1, I will have to pay Rs 2,500 to each at level 1, and I will have to share 50% out of 50,000, that’s Rs 25,000. But I still keep Rs 25,000 with me.
So now you can see, I made a total 5,000 from 10 people at level 1 and Rs 25,000 from 100 people at level 2. And each of the 10 person at level 1 made cool 2,500 from 10 people they added under them, they not only recovered their 1,000 back, but also got extra Rs 1,500 and a FREE book! Wow! This business model is amazing!
Level 3 – Add 1000 people
So the business is expanding and the word is spreading and my book ambassadors are in the market advertising this scheme and showing the kind of money they are making and the free book they get! Dude! They also have a valid cheque with them! No fraud! . So the word has spread like wildfire now and everyone wants to join this business.
Now, lets say each person at level 2 adds 10 more people under them again, because the word is spreading about this awesome business. There will be 1,000 people at level 3, paying 10 lacs to me and I will incur 5,00,000 expenses. I will pay 2,500 to each person at level 3, that means 2.5 lacs in total, but I will still keep 2.5 lacs with me.
Level 4 + 5 + 6
Can you see, how it’s growing? And how people are making money? From 1 person to 10 people, and from 10 to 100 and them from 100 to 1,000? But what next? Level 4? Level 5? Level?
When this reaches level 6 , there will be 10 lakh people under this scheme and they will be paying 100 crores to me! . You guys are going to hate me at that level! . Because you will never see me again! . Neither will I send any more books to anyone!, Nor will I send any share to anyone. I will just run away and you wont be able to trace me! . Any person who would have joined in at the start would find it easy to grow and spread the business. But people at bottom will just not be able to do anything, they are the last batch of fools!
During my College days there were 2 such schemes ( 7000/- & 1200/- each) introduced to me by my friends & asked me to join them. I explained them that they are highly unsustainable by using simple exponential formula (2^e). But still they thought i am a fool & not making money out of this wonderful Golden “Pyramid”. Thanks to God for that!!!. I just want to say that “User Pure Maths” before entering or dealing with any thing with your hard earned money. Be on your foot not on air.
In 2007, one of my good friend called me when i was out of station. “Sam, i have something great to share with you, when are u coming back? i cant wait to meet you etc etc”. I was kinda surprised and was very curious what he is gonna talk about. He took me to this office where many others showed cheques explained business model, asked me to buy some product and become a member. People were so promising that they will help me , let me grow & earn lots of money and all.. It was ‘Gold Quest International’. That day i made the biggest mistake of my financial life. They made me buy some Gold & Silver coin for Rs.38000 rupees using my credit card. After i joined i tried to reach out to some people in my circle and most of them are already part of it & others are not interested. To pay this credit card bill, i had to take a small personal loan. It was the initial days when i got into job and all these incidents made my financial position worst.
I lost 20 K in this MLM bullshit … it was with the name Cossets in Delhi . They arranged a huge pomp show in Siri Fort to show off the happiness of the people who had made money and became millionaires. There were multiple stores in Delhi where u cud purchase if u were a member Then some Ex army also got fooled joined in and invested smthng like 4-5 Lakhs his life savings got duped and then he made a case on the company . Phew Cossets was like GAYAB.
My brother was a victim of it late in 2002 in scheme(scam) called netkhazana.He lost around 17k at that time.And from that time I have got recommendations from freinds(?) and relatives(?) in to hell lot of schemes but never got into any because of the first bitter expereince. I suppose this schemes are gr8 if you have selfless people involved but that does not happen as the corpus grows to crores of rupees and people at top tempt to cut the goose.
Other Models of Scam
There are many other multi level marketing scams, which are not in a pyramid model, but they ask for money for some awesome investment based on some logic and then they really give back awesome returns to handful of investors, who spread the word about the scheme and them more and more people join the investment scheme and once it becomes very big, the person who started that scheme vanishes. The Govt is going to take some tough measures on these kind of fraudulent schemes. Here is a nice video which explains more about this.
Beware of these Get Quick Rich models
There are a hell of a lot of schemes and businesses running which show promises of making awesome returns from gold, stock market, real estate and many other kind of investments. They mostly will look really attractive and credible, but always remember that if someone is offering you anything better than bank fixed deposits, there is no doubt that there is some of the other risk involved. The bigger the potential return, bigger the risk.
Disclaimer : Note that we have just discussed how Network Marketing works and the basic mechanism. There might be various businesses and models which are making money, and might be good. This article just wants to bring awareness among people on the concept of pyramid schemes and they fool and loot majority of people in our country .
If you come across any Business like this, first make sure you check that its a member of India Direct Selling Association, which kind of gives a legitimate name and also they follow certain code of ethics. If its not part of this, I would say better stay away from it. Amway is part of it. So, not all Multi level marketing models are fraud, a lot of them are genuine also. Here is what Sunil shares about this
A Multi Level Marketing is different from Direct selling. Any company selling directly to the customer, removing all the supply chain management commissions behind, will be governed by Indian direct selling association, http://www.idsa.co.in (within India) and world federation for direct selling association, http://www.wfdsa.org . There are many companies like Avon Cosmetics, Amway, Oriflame, Herbalife, Tupperware etc.. registered under these federations. These companies work under the ethics defined by the IDSA or WFDSA and are very harsh on the people who dont adhere to these ethics. Many people reading this article will agree that the quality of the products they produce are amongst the best in the world. Many people are under the impression that these companies are similar to the other ponzi schemes.
Let us know what do you think about the concept of Multi Level Marketing and associated businesses. What is the biggest reason you think people fall for them and get trapped?
There have been too many fake phone calls in the name of IRDA these days to many people. It have been noticed that these IRDA fraud calls are made by anonymous people claiming that they can help you get your money back for your Insurance policies which have become a big headache those those who invested in ULIP’s traditional policies without understanding them and are stuck in those plans now. They know that IRDA is a body which handles them (do they?). At times investors are so fed up with their policies, their life situations and are so desperate to get help that they believe anyone who claims to help them.
So some very smart people starting calling up people claiming they are from IRDA and they can help them in getting back their money back or showing some kind of hope to help them. There are several instances where some people lost more money falling for these calls and believing in them. Lets see some examples of these fraud calls and how investors again believed them without doing their study.
Fraud Case 1 : Deepak lost Rs 25,000
I also Received a call from a number 01206470443 saying that he is from IRDA and I will get a bonus of atleast Rs. 20000- for the insurance policy that I had taken few years back from hdfcsl. However, I had to make an investment of Rs. 25000/- for birla sun life insurance company. but i have no recieved documents of birla sun life insurance company. Any one can tell what I do for my payment back. (link)
Comment
It was very obvious that their was a fraud done with him and he had either signed some cheque or given DD to someone without understanding what he was doing. He must be very excited to get back some bonus (which didnt exist). He
Fraud Case 2 : How S Dash lost 51,000
I received a call from a lady named Riya Malhotra who said she was from IRDA. She said that IRDA is helping out investors in getting back their long stuck up policy funds. I had one Bajaj Allianz policy which I wanted to close. She said she will help me do it if I take a new policy from Kotak Mahindra or Birla Sunlife
She said that this is a five year term, we pay one-time 51000 now (no more premium payment till 5 years) and we will get 50% of the 51000 in 45 days and after 5 years we will receive approx 76000. However we will get a life cover till I attain age of 100. Moreover we can also recover any insurance amount which we are unsatisfied with within 45 days also. It’s already more than 50 days since I made the payment of 51000 by cheque but I have not received any communications from her. I try calling her @ her mobile. No answer.
Please suggest what should I do? (link)
Comment
Note sure whom did she write the cheque for ? There was no rational on choosing a new policy just to get back the money from old policy, there is no relation between both policies.
Fraud Case 3 : How Vikas Lost Rs 3 lacs
Mere pass call aya ki birla sun life me policy one time karane par ek verna car gift ki ja rhi hai , lekin rupees cash dene hoge maine three lakh rupees de diye lekin aaj ek mhina ho gya na to koi bond paper aaya h na hi mere paise sir plz me kya kru (link)
Comments
I have no idea how a person can believe that if you if you buy a policy , you will be gifted a car ! . Thats too guaranteed ! , That too by giving cash ! .. While this was a fraud call , there was some common sense expected too !
Fraud Case 4 : How Sumit lost his money
In last December 2011 I got a call from IRDA (from number 0120-3050600 saying they are from IRDA) saying that your last policy premium will be recovered as we are from IRDA and we will give one regulatory to Birla Sun Life to return your money back but I’ll not get this amount directly to my account. What I need to do is to take a policy from Aegon Religare for the same amount Rs 36000. This policy will be actually for 16 years with 10 years locking period. But Due to IRDA intervention your policy will be for only 3 months locking period. Your first year premium will be paid by amount from Birla Sun Life policy and I need to pay another Rs 36000 as current year premium and I need to pay next year premium and then 4th year I can withdraw the amount which will be around 1.6L due to some calculation. Over and above that they committed that company will pay agent commission to my account which will be 25% of yearly premium. They will bypass agent from my policy.
They were continuously in contact with me till 18th Jan that I’ll get a separate statement. They know that I can cancel the policy within 15 days of receiving the documents so they were contacting me so that I’ll be convinced and cannot cancel the policy. But after 20th Jan they are neither picking my call nor calling me. So they have found a new way by picking weak vain of customer by giving promise that old lapsed policy amount will be recovered as well you will get agent commission. I had taken this policy bcaz of tenure will be 3 years as well as I’ll get agent commission with last policy lapsed amount.
The person whom I was in continuous contact was Anjali Oberai. Her mobile number is OXXXXXXXX and direct landline number is 0120-4396848. I have called many times on these two numbers to her. Before 20th Jan she entertained all my calls but now she is not picking my call. Also same policy benefits were explained to me by Neha Chaturvedi one of senior person of IRDA from Hyderabad. Anjali Oberai represented Neha Chaturvedias senior person from IRDA from Hyderabad and she came to NCR for some time. Many times I had doubt on them but due to greed of recovery of my loosed last policy amount and getting agent commission I was cheated by them. I know it’s completely my fault. But I would like to take in focus of all so that nobody can be cheated. (link)
Comment
I can see a clear gap in understanding of how life insurance industry works and too much faith in stranger who called up on the name of IRDA . If the policy was really taken from Aegon religare , it should be checked who was the agent in this whole process and nab him/her.
IRDA has clearly issued a notice saying that there is no initiative from IRDA like this
Insurance Regulatory and Development Authority (IRDA) is a regulatory body established by an Act of Parliament to protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto.
Some instances have been observed by the Authority that general public are receiving calls from individuals who claim to be representatives of IRDA and offering insurance policies of different insurance companies with various benefits (such as offering of scholarship along with policy etc.).
The general public is hereby informed that Insurance Regulatory and Development Authority is a regulatory body which does not involve directly or through any representative in sale of any kind of insurance or financial products. Any person making any kind of ‘transaction with such individuals/agents will be doing the same at their own risk. If any member of the public notices such instances he/she may lodge a police complaint in the local police station.
Sd/- (Kunnel Prem) Consultant and Special Officer (Life)
Don’t fall for IRDA Fraud Calls
IRDA is just a regulator for Insurance sector. They do not make any calls acting as mediator between you and company. All they can do is direct a company for some matter or ask them to follow a guideline. But they never work on individual cases and send people to collect money from you. Even if it did , it will never ask for Cash or any kind of cheque on personal names. These kind of calls are purely fraud done by those who know which policies you have (known somehow) and then they just try to see if you can fall for their false promises. Use common sense because making payment to anyone like this, do not pay any attention to these IRDA Fraud Calls.
Have you been mis-sold any financial product? If yes, then you must be confused about how to approach the consumer forum and talk to the company’s customer care to get justice. While there is no guarantee, neither there is any magical formula on getting justice. There are a few rules and some tips which you can keep in mind while trying to resolve consumer complaints and approaching consumer forums in India. So I asked Ankur Singla of Akosha.com, to share some tips and tricks which you can use. Akosha.com works in the area of resolving consumer complaints in India against large brands. So here is what they have to share –
Customer Care escalation
If a bank or insurance company (or any other company for that matter) mis-sell a product or provides a deficient service, you are entitled to get relief from the consumer forum. Before you decide to file a complaint, make sure you have done the following –
Spoken to the company‘s customer care,
Escalated the call (simply ask the junior customer care representative that you would like to speak with his senior) and tried reasoning with them
Approached the industry ombudsman – our experience with banking and insurance ombudsman is mixed. Sometimes you don’t hear from them for months, sometimes they are prompt and the bank or the insurance company back down simply upon the matter being sent to them.
If none of these have worked for you, and you are still unhappy, you can consider approaching a consumer forum. Here is how:
Approaching Consumer Court Forum in India
Step 1
Send the company a notice. A notice is a letter, hand-written or printed on plain paper which explains what exactly happened, what you are unhappy about, what you would like the company to do and what you would do in case the company does not resolve the issue. Here are some tips on writing this letter:
1. Do not misstate facts. If there has been some lapse from your side, please expressly state it.
2. Specify all the details which would enable the company to resolve your complaint faster (who you spoke to, invoice number, request number, product id, date of purchase etc.).
3. Do not use foul language or threaten. However, be firm.
4. Provide a 15 day period for them to resolve your complaint.
5. Make sure that you mention a line to the effect that if the company fails to resolve the issue, you would be forced to file a consumer complaint and take other action as well.
6. Send this letter by registered post acknowledgment due or by courier. Make sure you tell the courier company that you would be requiring the proof of delivery (POD) from them. It usually comes to you in 15-20 days of sending the letter.
Step 2
At this stage, usually, the company will call you back or email you and start taking your complaint seriously. If they offer you relief or some kind of incentives, coupons, free products or services, do consider their offer seriously. Don’t try to over-optimize (we have had a lot of customers who ask for ridiculous amounts of compensation – which would not even be given by the consumer court forums. Therefore, the company decides to wait and let the consumer approach the forum).
There is also the possibility that the company will not reply to your notice or reply to say that they would not be able to solve your complaint. In such a case, you are left with no option but to go to the appropriate consumer forum.
Step 3
Consumer Forums are divided into 3 levels – District Level, State Level, and the National.
If the total amount involved in your complaint (worth of the goods or services and the compensation you ask for) is below Rs.20 lakhs, then you will have to approach a District Forum. Typically, you have to file your complaint at the District Forum under whose jurisdiction the company or its dealer or its authorized agent carries on business. To understand which forum you can file your complaint in; please see this article – Understanding Jurisdiction of Consumer Forums.
Typically it will take about 6-18 months to resolve a complaint through the District Forum. If the stakes involved are high, either side may appeal to the State Forum and the matter may take longer. You have the option to appear before the District Forum yourself or through a lawyer. Usually, people do not have the time to appear themselves, so they hire a lawyer. A lawyer can charge anywhere between Rs.2000 to Rs.20000 for a consumer complaint depending upon the complexity of the case, his/her experience, and your willingness to pay.
During the course of the case, you might have to appear 2-4 times in the District Forum. Don’t be intimidated by this – the judges are generally customer friendly and you are only required to state the facts.
Tips on writing the complaint
Here is a link to the format in which the complaint has to be written. It is pretty simple and you can do it yourself.
Make sure all the paragraphs are numbered and you state all the relevant facts properly.
Make sure you have supporting documents to prove your case.
Please add a simple clause saying that the consumer forum you are approaching is the correct one and has jurisdiction over the matter.
You can also go directly to the nearest consumer forum and ask at the helpdesk to help you with your complaint.
Once the consumer complaint is filed, the consumer forum sends a notice to the company asking them to respond to your complaint. A lot of times the company will realize that you are serious and probably, to avoid spending 10-15k on their own lawyer, simply resolve the complaint. However, in banking, insurance and financial sector, most of the large players prefer to take the customers through court and often keep appealing against successive defeats in front of consumer forums.
So, why don’t people file consumer complaints?
Despite the ease of using consumer forums, a lot of customers don’t end up filing a consumer complaint. It’s a quick cost-benefit analysis – it sounds like too much time, money and effort to pursue it. Sometimes the stakes involved are not that great; also Indian customers have a Chalta Hai Attitude. Once their issue is resolved, they move on with their lives. However, if you are really frustrated with something, it is important to know how to file a consumer complaint.
Just like the RTI, filing a consumer complaint is a powerful tool for consumers. If you are unhappy with a product or service, just follow this process and you should come out happy on the other side.
5 important lessons from solving consumer complaints
1. As a customer you can be wrong as well. So make sure you understand the terms and conditions when you buy financial products and services. A simple Google search like “5 things to know about mediclaim insurance” could lead you to some useful articles.
2. There is no such thing as a free lunch. If something is too good to be true or sounds like a great deal, simply avoid it. It’s most likely something that will end up scamming you.
3. Escalation of your complaint to higher authorities of the company is an art. Don’t write angry emails. Don’t do a version of the Delhi-style “Jaanta Hai Mera Baap Kaun Hai”. Remember there are human beings on the other end. Write politely, reasonably and not very long emails/letters (unlike this article).
4. Some banks/insurance companies’ CEO has an escalation department of their own. So if you can find their email id or guess their email id, just copy them in. Their secretary will check it and probably your complaint will be heard quickly.
5. Prevention is the only cure. Life’s too short to waste time talking to customer care. Avoid such situations.
You can reach Ankur at Ankur @ akosha.com. Ankur is a graduate of the National Law School of India, Bangalore and worked at a corporate law firm before starting Akosha. I am sure your Consumer Complaints will be solved
LIC Bima Account is the latest product launched by LIC of India on this festive tax season (generally known as JFM, JAN-FEB-MARCH, Tax saving season). There are mainly two varieties of this insurance plan called LIC Bima Account 1 and LIC Bima account 2, which differ a bit in terms of premiums, tenure, etc. No wonder that it’s the best time to launch the insurance plan as everyone is looking forward to investing in tax-saving, and when something has a tag of “Guaranteed returns” + “LIC” , its an instant favorite :).
LIC Bima account comes under sec 80C, you can save income tax on the amount invested. A lot of risk-averse investors will be investing in these plans. However, It’s important to know what these plans have to offer in terms of returns and see if it’s as transparent as it looks like. The company claims to pay a 6% return, but will it be 6% by the time it reaches your hand? Let’s look at it.
Did you notice the above picture? It’s very much related to our financial services industry. Every other financial product has a face, which is shown to public, but if you analyze it further and look at it from the mirror of IRR, you can see its real face which is too horrifying sometimes .. Be it ULIP’s, Endowment plans and even PMS schemes, every other product has some real face which we need to find out . I have tried it find the real face of LIC Bima Account policy here. It’s up to you to decide is it beautiful or not!
Features of LIC Bima Account 1 and LIC Bima Account 2
The chart below gives you an idea of both the variants of the policy. While LIC Bima Account 1 is for investors who can pay smaller premiums, Bima 2 is for investors who are looking fo paying higher premiums.
The lock-in period for these policies is 3 yrs, You can surrender the policy after paying the premium for 1 yr, but you will be paid back only after completion of 3 yrs lock-in period. The common part of both the plans is that you will get 6% returns from these plans if you continue paying the premiums till maturity, but only 5% return if you make it as paid-up policy. There will be a bonus also paid by LIC in these plans, but it would depend on the company experience with the plan and bonus is not guaranteed. Also the bonus will only be applicable for investors who have completed the whole tenure.
Important: Taxation of LIC Bima once DTC is in Force
Another important point worth nothing is taxation of LIC Bima Account policy after the Direct Tax Code is in effect. As per DTC, the tax exemption will be allowed only if the Sum assured is more than 20 times the yearly Premium, however, both LIC Bima Account 1 and LIC Bima Account 2 offers options where a person can choose Sum Assured which is less than 20 times the yearly premium (see the chart above).
In that case, they will be able to claim the tax deductions in this current year and next year also, however there after they won’t be able to claim any deductions on this policy. I am not sure how many investors are looking at this point. The majority of investors in LIC Bima are going to be from small cities, who will definitely have no idea about this taxation point.
Commission for agents in LIC Bima Account 1 & 2
So what is the commission LIC agents will make from selling these policies? Here are the numbers shared by an LIC agent with me over the phone.
16.5% for first year
3.5% for the second and third year
2% for 4th year onwards
What are the returns from LIC Bima plans?
This is where one has to pay attention to. Note that the returns of 6% are offered only in the Net amount invested (Final Amount in the charts below). We will take an example of LIC Bima account 2 Plan 806 below which I got from. Suppose you invest 1,00,000 per year in this plan for tenure of 10 yrs, then at the end of the tenure you will receive 12,36,911, guess how much actual return does it translate to? So we have to do an IRR analysis for this to find out the actually CAGR return an investor will get. As per IRR analysis, the returns turn out to be 4.217 %. So this is the return an investor would earn in 10 yrs, note that is the return without considering any bonus. For investors who will make the policy paid up or surrender it, for them the IRR would be drastically low and might be as low as 0% or negative also depending on how early investor makes it paid up.
Look at the chart below which shows you the IRR analysis for LIC Bima Account 2 policy, The numbers below are provided by an LIC agent over email to me.
So the main point here is that why is an investor not informed about the actual return which he gets in his hand? Why the returns of 6% are shown in a way that common public will not be able to find it out. One can also show the returns like 9% or 10% and then increase the charges to such a level so that the investors in hand returns are just 4-5 %. These plans are going to generate a lot of attention and crores and crores will be generated. Do you feel it can be called misselling or Mis-use of Public trust, as the returns are in a way misleading? This is a question from you as an investor !.
A trusted source Dhawal Sharma had a talk with LIC Development Officer and here is what he found out –
I met with an LIC DO yesterday and he explained to me that BIMA ACCOUNT is for someone looking for other option than Saving Bank Account and thus the name.. Bank Account gives 3.5% and here it is with Minimum Guarantee of 6%, that too with Insurance Cover and tax benefit.
It’s another LIC stunt of JFM (JAN-FEB-MARCH) Tax saving season..Remember, LIC launched WEALTH PLUS last year on 8th FEB…Crores of policies were sold and crores of premium was raised by LIC in 2 months flat..I am eye-witness to last year’s madness when LIC agents were asking people to come along with FILLED FORMs for WEALTH PLUS and public obliging..and there we were, the KOTAK (or PVT PLAYERs) doing everything for the client but still being made to look second-grade in comparison to LIC..That the NAV of WEALTH PLUS now is Rs 9.63 is a different matter altogether 😉 Just wait and look for a new product from LIC every year in FEB..
Actually its not misselling, its MISSUSE of the TRUST that people have in LIC..”Whatever LIC come up with must be good” according to Indian public and thus the result..
Note that the actual returns from LIC Bima after considering the non-guaranteed bonus will be higher, but still it would hardly be attractive enough.
Comments? Are you buying it? What kind of investors should buy LIC Bima Plan?
Buyers Beware. This is the mantra one has to follow in Indian financial markets. From last many years agents and so-called “Financial Advisors” are using fancy words and tactics to lure investors and sell them inappropriate products like wrong Mutual funds, ULIPS, ULPP’s and Endowment Policies.
In this article we will see what are the common tactics used by agents and how we should handle them and demand logical explanation.
Note that this is not an exhaustive list and there are many more miss-selling techniques which is not covered here. Lets see them one by one.
1# High Dividends declared by Mutual funds.
This is very common tactic used by agents. Even the mutual fund companies advertise about big dividend payout to lure investors.
Investors who do not how mutual funds with dividend options work fall in the trap thinking that dividend is something extra which they get apart from growth, where as the reality is that dividend is your own money which comes back to you and then NAV goes down by that much quantity.
This is a very effective statement because every investor wants “no trap” investment option, hearing that we just have to premiums for 3 yrs and still our insurance cover and policy will keep running makes us interested in these products.
The other thing is that advising paying premiums just for 3 yrs is wrong thing as ULIPs are long-term products and should not be used for short term. This is against the basic principle of any equity related product.
3# This fund has returned 36.6% annual return in last 4 years
Last 4-6 yrs have been extremely good for Indian markets and performance of every mutual funds, ETF or Equity linked product has been great. This single most fact has been used by agents and they have been advertising about the “great performance” of their respective ULIP’s and mutual funds.
What one has to really look at are the returns a product has provided over and above its benchmark or other peers. If Nifty has given 40% return and a mutual funds with bench mark as Nifty has given 41%, there is nothing great in this1p..
This is not true! Any Unit Linked product does not come with Guaranteed returns. Agents some times just say this to attract customers and moreover their Greed! There might be the case that there is some guarantee for initial years premium or over all but then it will be so low that its not even worth considering.
A simple thumb rule is that anything beyond Bank FD returns will always carry some level of risk otherwise why will someone buy FD at all if they can get some guaranteed returns. Nothing comes free in this world, there is always some risk involved.
Watch this video and don’t get fooled by the agents selling ULIPS plan:
5# This is regarding 180% – 250% guaranteed return plan Sir.
Now a days I can see this strange thing with most of the products, that they have started giving “guaranteed returns” with first year premiums.
This has two reasons, people in India like words like “guaranteed” and “secure” especially at times when markets are doing bad, second reason is that they can use these words at the time of promoting their products, I get a lot of calls which start with “Hello sir, this call is regarding 250% guaranteed return plan sir, Can i explain it to you?”
I can sense that sense of pride in the caller’s voice clearly when they say this even though they dont know whom they are talking too.
My first question to them is “Just tell me the IRR of this policy” and then starts the process of “wait sir, let me transfer the call to my senior” and then “wait sir, Let me transfer the call to the regional manager and CEO” who have no idea what is IRR!!! Finally
6# I will give you 10% of Cash back on premiums paid.
ULIPs and an endowment plans have very high commissions in the first year [See a case of miss-selling in ULIP]. So agents lure customers by giving back some part of their commissions back, in this way they get more clients and more money overall.
Don’t fall in trap of this. Many agents also offer to pay your premiums for 1 yr so that you fall into the trap and take the policy.
7# Money doubling in three years
This is again based on past performance, ask for the average rate of return over long term and anything above 15-16% should look unrealistic. Many agents tell the illustration by taking 20% or as high as 30% as return, they will show your last 5 yrs data when this has actually happened, but its not a right thing for 2 reasons.
First reason is that as per IRDA they are supposed to show you illustration with 6% and 10%, nothing other than this. Ask the agent to explain why they are showing you anything other than 6% or 10%. The other reason is that 20% and 30% are not realistic returns from equity in very long run, you should not expect more than 12-15%.
“Free”, we love this word. You can see that even I have used this word at the top of the page right hand side of this page to lure visitors to subscribe to this blog. It works in most of the cases.
There is nothing called as “Free Insurance”, most of the investors do not understand how insurance works and what are the terminologies, they don’t know that there is something called as “mortality charges” which we have to pay as cost of Insurance.
Apart from this agents also stress on tax saving part which is not something which is unique to those products. We have tax savings on different products anyways.
9# These are most bought product in the market and have good returns.
Now this is vicious circle, ULIPs are around 70-80% of the products sold by Life insurance companies these days, the reasons are simple. They are explained by agents in such a way that things looks so rosy that customers feel its a worth buying product.
So agents pitch these products to other investors and then they feel “if everyone is doing it then it should be right thing“, far from the actual and real truth. Common sense is not common, so don’t do what others are doing just blindly, think about it yourself, evaluate it.
You should rather be doing what very less people do. Buy Term Insurance which is not even 1-2% of policies sold 🙂 .
10# Low NAV of a NFO from mutual funds
Most of the NFO’s pay very heavy commissions to agents. This is the reason agents tell investors that they should invest in this mutual funds because they will get more units. Even Investors confuse NAV of mutual funds as share price of a company.
At the end its fund performance which should matter and not NAV number, truly speaking we should request IRDA to ban publishing NAV numbers. Some agents also lure investors saying that they should buy low NAV mutual funds because they will get more units and then more dividend as dividend is paid per unit basis.
This is true but again at the end investor will not benefit as dividend is nothing but their own money.
11# Readers Contribution
Add a comment telling how agent tried miss-selling a product to you and I will add it here :). You can also share any incident small or big.
Readers Tip, How to reduce Misselling: One of the readers “Jagbir” has suggested an excellent idea for IRDA to curb miss-selling: As per Jagbir, “Agents must get commission only after customer feedback, If customer is not satisfied with the agent suggestion or his way of selling, they can give the feedback and then agent commission will not be paid “.
What do you guys think about this ? Please comment ..
Conclusion
India financial markets have two main issues
High commissions for agents:
Because of high commissions, agents tend to go beyond limits and start unethical selling. Apart from this lot of sales pressure, pressure of meeting targets force agents to achieve the target by hook or crook. IRDA should finally come up with some rule where they remove the commissions on the products.
Low awareness and understanding from investors:
Finance Industry has very smart people at higher level, CEO, Relationship managers, advisers and everyone. they are smart people. they understand human psychology. They know Indian public more than Indian public knows themselves. They know what words to use when and how to divert our minds, our thinking.
Why do they come up with “Guaranteed return products” when markets are low?
That the the perfect and the most right time for everyone to enter Equity, but companies know we are afraid of losing, we don’t like losses, we have lesser risk appetite and then all the Jeevan Astha and Jeevan Nishchay and other Secured products like RGF will pop up.
Most of the NFO’s will come in the bull markets and when markets are already up because that is the time we are charged up and ready to bet our home on anything, that is the time when we have to avoid those things.
So finally avoid the trap, ask questions, doubt everything!!
I would like to hear if anything like this has happened with you did some agent every tried some tactic to missell a product to you. Please share your experience and let others know what happened with you.
Many people have been sold LIC policies without making them understand what is that policy and how is that structured for you.
I have recently been informed by one reader how an LIC agent sold her a policy claiming it to be “a great opportunity” and gave her wrong information about the policy and the actual thing was totally different, which she discovered from another LIC agent years after.
Now the situation is a total mess. [Written in Train, Posted from Home]
Mis-selling from an LIC agent
Hello manish..
I have been taken for a ride by a cheating “char so bees” LIC agent. Please help me. In 2006 I got married and moved in with my husband to a very remote mountainous region. Soon we had a Lic agent pestering my husband about taking a ” good” life insurance.
I had read in a Readers Digest issue about term insurance and asked the agent about the same. But that shameless fellow said that such a thing was not available in LIC.
Since he was the most “renowned” agent, I trusted him and took the next best thing he offered – a 22 year 16 lakh money back policy Jeevan Anurag in which I would have to pay Rs1.21 lakh per annum for 7 years after which we would start getting money back( Rs80,000 in the 7th, 8th, 9th, 11th, 12th, 13th, 15th, 16th, 17th, 19th, 20th, 21st year and 3, 4, 5, 9 lakhs in the 10th,14th,18th,22nd year).
He also said that our as our policy got older we would have to pay less premium. I did’nt quite understand when he gave us 4 policy papers and questioned him about it on two occassions. But he asked us to trust him and ” reap the benifts of this incredible policy”.
I had my doubts but I was naive and did not want any trouble. 2 months back we got transferred to a more” civilised” town and soon we had a new LIC agent knocking our door. As we talked about my previous policy this new agent said that he has never heard of such a policy and asked to see the papers.
I was dumbfounded when the agent told me that I dont have a 16 year policy but 4 different policies of 4 lakhs each for 10,14,18 and 22 years of which the premiums are Rs 46032, Rs31842,Rs 24355, Rs19357.
Jeevan Anurag provides the following assured benefit-“..an amount= 20% of of basic SA at the start of the year during the last 3 years before maturity shall be payable . At maturity balance 40% of basic SA+bonus…”.
That cunning man had arranged the policies in such a way that when one reached maturity the other just stared paying up. I feel so stupid for having been duped. I have already paid 4 premiums(4.9 lakhs)…
now I am in such a state of confusion that I dont know what to do next. Should I discontinue or should I continue ???
I see a lot of sense in what you say and I would really like to invest into some of your ideas but my money is stuck and I dont know where to go from here..Where I live the only financial advisor available is the LIC agent and I dont trust a word he says so please show me a way out.. I really need your help.
And is there a way I can get back at that sleazy agent? Help?? please..
I can see that you are mis-sold the policy , The returns which you mentioned to me also looks little cooked up , please check the numbers once again , if needed involve that new LIC agent to find out what is the exact money you are going to get back in different years .
If you have 4 lacs policy for 10, 14, 18 and 22 years, then that 80k figure is correct. but looks like the 3,4,5,9 lacs thing little cooked up . you should be actually getting 1.6 lacs + Sum assured in each 10th, 14th, 18th and 22nd year.
Looks like this has overestimated the sum assured part and made it 3,4,5 and 9 lacs, This might happen but the probability for that is close to 0. Ask the new LIC agent to estimate how much is it…
My estimate is not more than 2.5 lacs in each 10th, 14th, 18th and 22nd year. max 3 lacs… Apart from this the premium of 1.21 lacs is to be paid upto 7 yrs, that is true, but after that, only the first premium will stop, the other 3 will continue and then 2nd will stop in 10th yrs .. and so on.
Truly speaking, I am more mad on you guys than that LIC agent
Regarding tracking down that LIC agent , you might have phone or address or some sort of contact . If not , Contact LIC and find out your LIC agent name and agent number or something . File a complaint with LIC on this matter and once its not taken care within 2 months, file a compaints with IRDA on this .
Take this matter to consumer court . I am giving all these suggestions but not sure if this will be of too much help , because you guys have signed the document which says “I hereby understand and agree with Policy Document and am responsible for all the invesment decision” , Hence I am raising my hand to help you but fingers are crossed .
Apologies if I my words sound little rude , but I am an emotional person .
Comments
What do you think about this issue, Do you know how to track that agent again, Anyone can help this person? Contact me…
Recently I saw a perfect example of ULIP misselling. One of my friend’s parents gave their money to a close friend who was working for some Investment firm and assured them of doing great investments on their behalf.
The total money involved was more than 10 Lacs. I don’t know what else he did, but he bought a ULIP from their money and its the perfect example of miss-selling here. Lets see it in details.
Now 48% goes in Premium Allocation charges, rest of the money will grow at moderate return because it was mix of bear and bull market which the money was invested.
Why was it invested in ULIP first of all and that too Rs 3 lacs as premium!! This is one of the costliest ULIPS in market and has to track record. Why was family financial needs not considered before investing? Why was their risk-appetite not considered?
What kind of agent is this? He takes advantage of trust and invests in something which gives him maximum commission. There was no proper communication about charges and no statements reached them on time.
What is miss-selling here?
Giving “Wrong-Information” is not a big issue, the bigger issue is not giving “any information”. One of the reasons why this kind of things happen is lack of accountability on agents side. You take the product and sign the documents means you are responsible for your decision. While that is true legally, its totally unacceptable morally.
The only thing the investor can do here is make an issue out of it and tell the Insurance company that’s agent miss-sold the policy to him and did not tell him about the charges. Worst thing is investors don’t even know about the “Free Lookup Period”, which is 15 days from purchase of policy before which Investor can cancel the policy of they don’t like it or change their mind.
UPDATE
This is an update after my friend Rishi, whose case we are discussing commented on this article, I am putting up some more thoughts in this below. In case he takes some legal action on this matter. I can think of following things which will be useful and important to quote.
1. As everything was done legally, documentation and signatures taken from investor etc etc. The one thing which can make your case stronger is “explaination” from HSBC people that on what grounds “that Ulip” suited your needs.
How did they come up that this ULIP was the best choice for your family, I hope being the “trusted” and “portfolio managers” they think of your profits and hence they must have figured out why this ULIP was the best in the industry for you guys.
2. How do HSBC products best for you people (i hope 70-80 products they choose were HSBC products)?
3. as per IRDA “it is the moral obligation of the insurer to maintain the ethics and spirit of business across its workforce”. The mere fact that premiums were stopped after 1 yr and now your people are not happy with this shows that obviously you people were not informed well about the cost structure in the start.
Finally this is more of a matter of “Unprofessional Behaviour” than miss-selling per se. I am not sure how much HSBC will help you, as they generally pass the buck on “agent” and “investor who invested”.
You might have to take this case with IRDA. You must first talk to Bank, agent etc and then after you are not satisfied with them, you should go complain at the IRDA ombudsman: https://www.irdaindia.org/ins_ombusman.htm
The ground of plea should be based on “monetary + psychological loss”.
You can read here Confession of an Insurance agent in his own words
Please share if you think there is a good way for getting justice on this matter. Your comments are valuable? Should this is taken into court?
This is not true! Any 