There are many reasons why people make wrong investments. One is when they invest in a hurry during the tax season. To save taxes, they make last minute investments and might feel later that it doesn’t fit their risk profile. Another reason why people make wrong investments is when they don’t know about financial products like mutual funds. They might invest in stocks or mutual funds on the advice of others and when they feel there are other worthy investments, they might not want to continue with those investments.
Real estate investments may also turn out to be duds because the investor is not able to rent out the property. Gold jewellery is an investment where people might find it difficult to liquidate. If you invested in a financial product that you don’t want anymore, here are ways in which you can get back your money.
If you invested in the wrong life insurance product and find out about it immediately, use the free look period to cancel the insurance policy. For health insurance policies, you can use the free look period only if the policy has a term of at least three years. Free look period is a 15-day period from the date of receipt of your policy document. If you bought the policy online, the free look period will be 30 days. Within this time, you should communicate your intent to cancel the policy in writing. Once you cancel the policy, you will get a refund of the amount you paid for the policy. For Unit Linked Plan (ULIP) policies, the premium refund will be as per the prevailing NAV applicable on the date of policy cancellation.
What if you find out later that the policy is not the one for you? Note that insurance plans are long-term products with lock-in and premature redemption penalties. If you don’t use the free look period, you can choose to either surrender the policy or get it paid up.
Surrender value of a life insurance policy is the amount you get when you surrender the policy before the maturity of the policy. You will get the money and your policy will be terminated. By getting your policy paid up, the policy runs at a reduced sum assured known as the paid-up value up for the policy term after which the paid up value is paid on maturity.
Surrender is a good option if you don’t want the policy and want to use the surrender value to invest. For example, let’s say a policy with a paid-up value of Rs 90,000 has a surrender value of Rs 40,500 (45% of paid-up value). If you invest this money at 12% in a mutual fund, the money becomes Rs 1 lakh in eight years. This is better than staying invested in the policy using the paid-up option. If you don’t want to pay the premiums anymore but want the policy to continue, it is best to get it paid up.
Got a ULIP and found that too much equity lowered returns? Use the auto rebalance feature to maintain the asset allocation that you want.
If you invested in the wrong fund, you can sell it immediately if it is an open ended fund. For close ended fund, you have to wait till maturity. Don’t sell mutual funds on the advice of friends or family. You should talk to a finance expert or a financial planner before you sell mutual funds. If you sell the funds for a profit, you might have to pay capital gains taxes (long term capital gains tax for equity investors is 10% for gains of over Rs 1 lakh in a year). There could be exit load charges as well. Before selling the fund, compare the returns from the fund with that of its benchmark and peers. If it has consistently underperformed over the years, you can consider selling the fund.
Note that stocks are long-term investments and you might have to pay short term capital gains taxes if you sell stocks within a year of buying them (which is 15%). When you want to sell, compare the performance of the stock with its peers in the same industry. You should find out whether the industry itself is going through a bad phase. Determine the industry average to find out if the stock has underperformed. Seek professional help to know the entry and exit levels.
How to minimise risks when you buy stocks? One way is by setting limits. Set limits to the amount of exposure to a particular sector. Another is by setting aside a fund for investing during market crashes. This will help you buy quality stocks at lower prices. It always helps average out costs of purchasing stocks, especially if you hold stocks that have risen quite a bit. However, do not go overboard with this strategy as waiting for opportunities will mean lesser returns.
Real estate investments
These are highly illiquid and with stamp duty ranging between 5% – 15%, selling property is a costly affair. You also need to take into account the capital gains taxes. So, do not sell real estate in the short-term. Five years is a good time to understand whether your real estate investment is a worthy one. Try to get income from the investment by renting out the property or leasing out the land. It is best to take professional advice before selling your property.
Gold acts as a hedge against inflation and economic slowdowns. If you have been investing in gold jewellery, understand that this isn’t exactly investment. Jewellery has little resale value. You must invest in gold coins and bars.
If you want to sell your gold jewellery, you might find that jewellery showrooms will offer only new gold jewellery for the old jewellery. So, you can consider jewellery that is of solid gold without stones or embellishments. Also, choose gold jewellery with minimal making charges and wastage. Now that gold prices are rising, you can get good value for your old gold.
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