Risk implies uncertainty. It is the potential of gaining or losing something of value. In financial language, it is the chance an investment’s actual return can differ from the expected rate of return.
All investments involve some degree of risk. If you intend to purchase any financial product – such as stocks, bonds, insurance or mutual funds – it’s important that you understand the risks associated with them.
The types of Investment risks can be ;
- Market risk
- Liquidity risk
- Interest rate risk
- Credit Risk / Default risk
- Inflation risk
- Longevity risk
- Re-investment risk
- Political risk
- Information Risk* etc.,
Wait..wait… what is this symbol ‘*’? What is information risk? Is this a very important risk to be aware of? Let’s discuss..
What is Asterisk? What is Information Risk?
When you are planning to buy/invest in a financial product, you take a decision based on the available information. You may get this information through advertisements, product brochures, articles available on the net, through friends and colleagues, newspapers (media), journals (or) agents/investment advisors.
Whatever might be the source of information, as an investor, you need to ask yourself if this information provided to you is right/wrong (or) complete/incomplete?
We may often notice Asterisk (*) symbol when you are going through financial products advertisements, marketing materials, brochures etc., What does this * sign imply?
The word Asterisk has two root-words ; Aster & risk. Aster stands for Star (symbol) and Risk, which is an inherent part of making investments.
The asterisk is a star-shaped symbol (*) primarily used to indicate an omission or call attention to a footnote or point to disclaimers (which often appear in small print in advertisements, contracts, product brochures and the like).
When a series of footnotes is required, the following sequence of symbols are generally used:
* , ** , *** , **** , † , ‡ , §
Let’s go through some sample financial product advertisements (old ones) and understand the importance of Asterisk symbol;
Home Loan Advertisement :
In the above advertisement, you can notice Asterisk symbol next to home loan rate of interest. If you get excited by just looking at the rate of interest, without reading the foot-notes and visit the lender, you may be in for some disappointment.
As per the foot-note : ‘* The above Rate of Interest is applicable for cases where a woman is an owner/co-owner and an applicant/co-applicant to the loan.’
Company Fixed Deposit Schemes:
If you see these kind of Advertisements, you need to try finding out – is this an effective yield? is this Pre-Tax Returns? etc.,
Demat Account Advertisements :
Insurance Plans :
You need to be very careful when you buying Insurance plans (life/non-life). The illustrations used to explain the benefits of an insurance plan can be very mis-leading. When it comes to Term Insurance / Health insurance plans, do not miss out going through the plan exclusions & policy wordings document(s).
Sometimes, you don’t find an Asterisk symbol or any footnotes in an Ad (like the one below). In such cases, if the offer/scheme is too good to believe then you need to be cautious. Try to find out more details about the suggested investment scheme.
If an advisor/agent is providing you the required information and you see an ‘Asterisk’ symbol in any of the documents (contract/illustrations/advertisements), advisable to immediately pose right questions to your advisor.
In case, you are a ‘DIY’ (Do-It-Yourself) investor, suggest you to invest sufficient time to go through the footnotes, terms & conditions, disclaimers or any information that are indicated by the Asterisk symbol(s).
Kindly do not underestimate the importance of reading and understanding the footnotes. When you have the right information, you can take well-informed investment decisions.
Continue reading :
- Mutual Fund Investments are subject to Market Risks! – My opinion
- Long Term Investment Horizon : Importance & Benefits | My father’s risky investments! (Real-life examples)
- The importance of numeracy in becoming Financially Literate!
(We are not biased towards any Company. Examples given in the above article are for the knowledge of users only.)
(Post published on : 29-January-2018)
A job well done! The asterisk is the biggest blight on the investment world, and it can hide so much. Large institutions are masters at shielding information from potential investors through their canny use of an asterisk. Congratulations on bringing it to the attention of people.