A Retirement Corpus and a Five-Year Equity Product
A 63-year-old retired government teacher receives a pension of ₹28,000 a month. She has ₹22 lakh in a savings account and no dependants. She wants an additional ₹8,000 a month and says she cannot afford to lose her capital. A bank relationship manager recommends a closed-ended equity-linked savings scheme with a five-year lock-in, an indicative return of 9–10%, a 2.25% annual fund management charge and a 1% exit load. The scheme is described in the brochure as 'capital protection oriented'. She signs the application the same day. No risk profiling is done, and the commission of 1.5% is not disclosed. Three months later the scheme's NAV falls 12% and she asks to withdraw. The bank says withdrawal is locked in. She complains that she was told her capital was protected.
1. Assess the suitability of the recommendation and the process followed. Distinguish product risk from process failure.
Read the worked answer
The recommendation was not suitable as the core home for her corpus.
Suitability is not only 'willingness to take risk'. It is the match between the product, the customer's need for income, liquidity, capital safety and time horizon. At 63, with ₹22 lakh and a stated need for ₹8,000 a month, she needs predictable cash flow and access to capital. A five-year closed-ended equity scheme with a lock-in and exit load provides neither. The 'capital protection oriented' label is especially misleading if it is not a guaranteed product; a 12% fall shows that market risk was real.
The process lapses matter: no risk profiling, no documented suitability assessment, no commission disclosure, and same-day signing by a senior citizen. The RM had a conflict because the commission was 1.5%. The fall in NAV alone does not prove misselling, but the combination of unsuitable product, misleading description and missing process supports a complaint. The bank should not defend the case only on 'market risk'.
2. Construct a more suitable plan to meet her income need while protecting capital and liquidity. Use the numbers.
Read the worked answer
A safer plan would separate income, emergency and growth needs.
- Keep ₹3–4 lakh in a savings account, sweep FD or liquid facility for emergencies and medical costs.
- Use the Senior Citizens' Savings Scheme for a large part, subject to its limit and five-year term, because it pays regular quarterly interest and is designed for this profile. The prevailing rate applies; do not quote a fixed rate without checking.
- Ladder the rest across bank FDs of different maturities so that she has access without breaking all deposits at once.
- If she wants inflation protection, allocate only a small, clearly explained slice to equity, and only money she will not need for at least seven years.
Her target is ₹8,000 × 12 = ₹96,000 a year, which is about 4.4% of ₹22 lakh. She does not need a 9–10% equity return to meet it. Chasing that return adds risk she says she cannot bear. The plan should be written down, with liquidity and tax explained.
3. What should she document and where can she seek redress? What outcome is realistic?
Read the worked answer
Documentation and redress:
- Ask the bank for the risk profile, the application, the brochure, the commission disclosure and any call recordings. If no risk profile exists, put that in writing.
- Complain first to the bank's grievance redressal officer, then to the RBI Ombudsman for the bank's service issues and to SEBI SCORES if a SEBI-registered mutual fund distributor or AMC is involved. Senior citizens are entitled to priority handling.
- Frame the complaint around suitability and misdescription, not just the fall: 'I was told capital was protected; I needed monthly income; I was not risk-profiled; the lock-in was not explained.'
- Ask for remediation: free switch to a suitable product, waiver of exit load, or compensation where the bank cannot show a proper process. Do not expect automatic compensation.
The bank should also review why a same-day sale to a senior citizen was allowed without a recorded suitability check. That is a control failure, even if the product itself was genuine.