What is Misselling? How Do I Know If I'm Being Missold a Financial Product?

A 2025 survey revealed that nearly 1,655 bank relationship managers admitted their seniors regularly asked them to missell financial products. Banks collectively earned over Rs 21,000 crore in commissions from selling insurance and mutual funds - many of which never served their intended purpose for customers. If you've ever felt pressured into buying a financial product you didn't fully understand, you might have been missold.

What is Misselling?

Misselling occurs when a financial product is sold to you through deception, incomplete information, or manipulation. It happens when the seller prioritizes their commission over your genuine financial needs.

Misselling involves:

  • Providing false or misleading information about a product
  • Hiding important facts like charges, risks, or lock-in periods
  • Recommending products unsuitable for your needs or risk profile
  • Using pressure tactics to close a sale
  • Making unrealistic promises about returns

Why Misselling is Rampant in India

The Commission Problem

Banks earn 2x to 11.3x more commission on life insurance products than mutual funds. This creates an overwhelming incentive to push insurance even when customers don't need it.

Example Commission Comparison:

  • Life insurance: Up to 65% of first-year premium
  • Mutual funds (trail commission): 0.5-1% annually

Conflict of Interest

Seven out of ten banks earned over 50% of their insurance commissions from related-party insurers. When your bank owns an insurance company, guess whose products they'll push?

Target-Driven Culture

Bank employees face intense pressure to meet product sales targets, often leading to aggressive selling regardless of customer suitability.

Red Flags: Signs You're Being Missold

1. Promises of "Guaranteed Returns"

If someone promises guaranteed high returns on market-linked products like ULIPs, mutual funds, or stocks - run. No market-linked investment can guarantee returns.

Red flag phrases:

  • "Guaranteed 15% returns"
  • "Assured maturity benefits"
  • "Double your money in 5 years"
  • "Risk-free equity investment"

2. High-Pressure Urgency Tactics

Legitimate financial planning doesn't require instant decisions. Be wary of:

  • "This offer expires today"
  • "Invest before March 31 to save tax" (when it's March 30)
  • "Limited-time scheme closing soon"
  • "Don't miss this once-in-a-decade opportunity"

3. Hidden Fees and Lock-in Periods

If the seller glosses over charges, lock-in periods, or exit penalties, something's wrong. Ask explicitly:

  • "What are ALL the charges?"
  • "What happens if I need money before maturity?"
  • "What's the surrender value after 1, 3, 5 years?"

4. Product Pushed Regardless of Your Needs

A genuine advisor asks about your goals first. Red flags:

  • Same product recommended regardless of your situation
  • Insurance sold to someone with no dependents
  • High-risk products sold to conservative investors
  • Retirement products sold to retirees (they need income, not accumulation)

5. Misleading Comparisons

Watch out for cherry-picked data:

  • "ULIP is better than mutual funds" (without showing total costs)
  • "This beat FD returns" (comparing equity to debt unfairly)
  • Showing only best-case scenarios

6. Refusal to Provide Documentation

If the seller avoids giving you written materials, product brochures, or key information documents before signing - major red flag.

Most Commonly Missold Products

1. ULIPs (Unit Linked Insurance Plans)

Often sold as "better than mutual funds" without disclosing high charges, 5-year lock-in, and typically poor returns. The truth: Term insurance + mutual funds usually beats ULIPs.

2. Endowment and Money-Back Plans

Marketed as savings plus insurance, but provide poor insurance coverage (sum assured often just 10x premium) and returns worse than PPF.

3. Credit Card Insurance

Often bundled automatically or sold aggressively at point of sale. Check your credit card statements - you might be paying for insurance you never agreed to.

4. PMS and AIFs

Portfolio Management Services and Alternative Investment Funds marketed to retail investors without clearly explaining Rs 50 lakh minimum, high fees, and risks.

5. Aggressive Mutual Funds to Conservative Investors

Small cap or sectoral funds sold to risk-averse investors who should be in large cap or balanced funds.

Questions to Ask Before Buying

Arm yourself with these questions:

  1. "Are you SEBI registered?" - If they're advising on securities without registration, their advice is sales-driven.
  2. "How does this fit my financial goals?" - Every recommendation should tie to your goals, timeline, and risk profile.
  3. "What are ALL the charges - upfront, annual, and hidden?" - Get this in writing.
  4. "What happens if I need to exit early?" - Know the penalties and surrender values.
  5. "What are the risks involved?" - If they say "no risk," that's your answer about their honesty.
  6. "Can I have this in writing?" - Genuine advisors document their recommendations.
  7. "How do you get paid?" - Understand their incentive structure.

How to Protect Yourself

1. Keep Insurance and Investment Separate

Buy term insurance for protection. Invest in mutual funds for wealth creation. Mixing them usually benefits only the seller.

2. Understand What You're Buying

Never sign anything you don't understand. Take the documents home, read them, or consult someone knowledgeable.

3. Use Free-Look Period

Insurance policies come with a 15-30 day free-look period. If you realize you've been missold, cancel within this period for a full refund.

4. Buy Direct Plans

For mutual funds, direct plans have no distributor commission, removing conflict of interest.

5. Stay Informed

Basic financial literacy is your best defense. Understand what different products do and what you actually need.

What to Do If You've Been Missold

  1. Gather Evidence - Collect all documents, emails, SMS messages, and brochures
  2. File Complaint with Company - Start with the company's grievance cell
  3. Escalate to Regulator - IRDAI for insurance, SEBI for securities
  4. Use Ombudsman - Insurance Ombudsman for insurance-related complaints
  5. Consumer Court - For unresolved grievances

Regulatory Actions Against Misselling

SEBI has taken several steps:

  • Banned upfront commissions on mutual funds
  • Mandated trail commission model
  • Required risk disclosure and suitability assessment
  • Introduced PIVC (Pre-Issuance Verification Calls) for insurance

However, enforcement remains a challenge. Your vigilance is your best protection.

Access Liquidity the Right Way

Need money but don't want to surrender a policy at a loss or redeem investments prematurely? DhanLAP offers Loan Against Mutual Funds (LAMF) - a transparent, no-hidden-charges way to access liquidity.

  • Clear terms - No hidden charges or complicated structures
  • Keep your investments - No need to exit at a loss
  • Quick processing - Often same-day
  • Competitive interest rates - Transparent pricing

Final Thoughts

Misselling thrives on information asymmetry and trust exploitation. The best defense is education - understand basic financial products, know what you need, and always ask questions. If something sounds too good to be true, it usually is.

Remember: A good financial advisor educates you, helps you understand trade-offs, and recommends products that fit YOUR needs - not products that maximize their commission. Find advisors who put your interests first.