Thursday 23 August 2007

Reliance Salary Advantage Fund: Another trap

Yesterday, I saw the promotion of Reliance Salary advantage fund on one of the leading business news channels.

Here is the summary of the offer:

You get salary each month. They advice you to set aside your monthly expenses and other payments that you need to make (like EMI, etc.).
Put the remaining money in Reliance Salary advantage fund.
The money that you put is invested in so called low-risk instruments, which are again mutual funds of reliance like Reliance Liquid Fund.
Their past performance shows that they have managed to get around 6% returns on annual basis.




Although at the end of the table, they do mention that “Past performance may not sustained in future” :- ) Even for a mere 6% past performance annually that too from 1995, they cannot guarantee to sustain it, and they call it salary advantage fund.
You get an ATM cum debit card that you can use to withdraw money anytime. The condition is that in a month, only 1 transaction is free, that too only at HDFC bank ATM. They have not mentioned anything about the charges that you may have to pay for withdrawing money from other ATMs or making more than 1 withdrawal in a month.
Though it is said to be like a liquid bank account, you can withdraw only upto 50% of your invested money – not more than that.
Another disadvantage is that though it is like a bank account, it cannot be used to issue cheques or EMI payments.

One more ambiguity is that the reliance website claims that there are no entry/exit loads; while report on CNBC mentioned that there is a 2.25% entry load. God knows what the truth is. If there is an entry load, reduce it from 6%, you will end up only with 6-2.25% = 3.75% - even less than what is offered by bank account.

There is no mention of the dates for which the investment will be considered for earning interest (like minimum balance between 5th and last date of the month). Such basic things are expected from a newly launched instrument.

The promotion on CNBC sited a “salaried” person, wearing a tie and formal shirt, happily mentioning how satisfied he is with the Reliance salary advantage fund.
-He mentioned that he is assured of 6% returns, as the past performance of the fund has been almost 6%. He is assured based upon the past performance, but the company offering the service is not assured for the returns in the future (as mentioned on their website)
-What has the markets done in last 12 years? Were they limited only to 6% returns? Even the returns from bonds were more that 8%. Probably the salaried person doesn’t know OR he was paid to speak only a few limited sentences for promotion.
-He also mentioned that 6% is better than 3.5% or 4% of what the banks offer. How about the guarantee that the bank gives and uncertainty this fund has?

Now compare it with a bank account or Fixed deposit account. My bank offers me 6% interest rate just for a deposit of more than 3 months. The return is GUARANTEED. If I keep the money for just more than 1 year, I am assured a GUARANTEED return of 9.5% in my FD. Should I still go with reliance salary advantage or should I visit my bank branch or login to internet banking for opening an online FD account?

In essence, this scheme is nothing but another way of presenting a new instrument or service, which is actually not worth it. Somehow, I am now also loosing the trust on the business news channels, about the way they are presenting such things. The promotion appeared to be like a news item – while it was actually an ad. It’s all about promotion and money making business. Let’s be keen on learning about calculating the real numbers, instead of jumping in on any advertisement or advice from a promotional scheme.

This is the official website of reliance salary advantage fund. (Opens in a new window)

Please read the comments and post your views and queries in the comments section which helps in open discussion and avoids duplicity of questions.

You may be interested in reading my previous articles. Here is the link to Table of Contents in a chronological order.

8 comments:

Anonymous said...

THanks Shobhit.
I was about to ask you for an analysis of this salary advantage fund - your article is jus in time and is real eye-opener.

Thanks a lot and keep up the good work!

Anonymous said...

Dear Shobhit,

Needless to say how valuable and how much we appreciate your articles. In fact I visit twice a day to go through your articles. I would be grateful if you could please write some articles on futures/options & derivatives.

Thanks you very much for all the good work from you Sir.

Anonymous said...

Hi,

I am regular visitor to your BLOG. I most liked article from your site is about MF and ETF.

I have a question about ULIP polices. I have ULIP policy and paid 3 for years already.

Earlier i have thought close after 3 years and take term policy from HDFC, but after reading your blog i came to konw that ULIP charge heavily first three years. after that 4% charged of course administration charge always extra.

Now i have decided not close it because i already paid heavy charge, now after 4th year onwards it will less. Is it make good idea or still it is good.

Thanks
Muthu

Anonymous said...

Good work, Shobhit...keep posting!

-Fred

Unknown said...

so many innocent investors have ended up falling for the deceptive but attractive looking traps laid down by all these funds. Its great work done by the author to educate all his readers and help them with this very difficult art of proper investing in safe instruments assuring minimum loss and maximum gains.
We are looking foorward to articles on derivatives and futures/options.

IT Correspondent said...

Muthu,
It's true that you have paid the heavy charges already adn now paying lower charges. But is 4% still low??
If you can trust your asset management company that it will give better returns, then carry on with them, else switch to PPF, ETF or other stocks, as per your risk apetite.

Shashi,

Articles on Derivatives require lot of graphs and diagrams.
I am continuously working on preparing them. I will need some time to finish it off, so readers should wait for sometime.

nvus said...

Hey shobit..dont u know that CNBC is a big marketing agency for major fund houses...there is no honesty in their review....i like outlook money...the articles are very interesting and actually are unbaised...not highlighting one company / product / service....

sunnysideup said...

holy shit! i almost went for it when in saw their add. But since I had my doubts about the company I googled and found ur article. I am a novice investor, just started out. I feel Reliance Grp of companies are a grp with vested interests!!!


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