3 Financial Instruments to Be Suspicious Of

1 Astrology Funds
“Jupiter enters Cancer, which could help non-cyclicals, but since Saturn is opposite Pluto, mergers will fail and fears of recession could increase.” Sounds weird? Sure, many traders are known to use astrology to pick shares. But funds that do so with other people’s cash are a definite no-no. The only defence in favour of astrology funds is that they sometimes perform better than regular funds. US fund manager Henry Weingarten pioneered this novel scheme and his book Investing by the Stars is a good introduction to the subject. (Surprisingly, this is in USA which makes a fetish of rationality, not India, where business folk frequently choose auspicious days for events.) But beware, it is too difficult even to measure market risk; don’t add celestial risk to your portfolio. 

2 Insurance That Sells Everything Else
The only insurance product worth taking is term insurance. Mixing insurance and investment is a bad idea. If you want returns, why pay premiums, charges, fees, allocation expenses and the various other levies? Just go and choose equity, debt or mutual funds that suit you. Child insurance? Isn’t normal insurance supposed to protect the child against the parent’s death? Similarly, don’t be tempted by EMI-protected insurance that says the company will pay the premium if you lose your job. Such schemes are very expensive.

3 Balloon Mortgage
Home loans which offer a very low interest rate in the first year are a honey trap. What matters is your overall interest rate for the entire period. Balloon mortgage plans come with restrictions and unfavourable terms once the honeymoon is over. So go for a fixed loan when interest rates are low. Don’t let the loan officer dissuade you. And make sure the rate is fixed for the entire tenure, not just the first five years. The lender might insert a clause that says it has the right to reset the “fixed” rate as per the prevailing interest rate scenario. Refuse such a clause.