Saturday, March 21, 2009

REASONS FOR FAILURE OF LIC JEEVAN AASTHA


This article by me was published in Financial Chronicle on January 26, 2009 edition.

MISSED target ¦
APROPOS to the report that LIC failed to garner targetted funds through Jeevan Aastha.
It must be mentioned that Jeevan Aastha failed because of huge misrepresentation by agents and even by LIC itself where it hides the real picture by using weasel words. The insurer claimed 10 per cent guaranteed return on the scheme but it’s not compounded.
An investment of Rs 48,000, as shown in their own illustration, gives Rs 1 lakh after 10 years. That’s about 7.5 per cent compounded, much less than the 10 per cent claimed. The “10% guaranteed return” was a marketing gimmick, and it’s very much likely that the whole marketing infrastructure was paid obscene amounts of money and commissions to push the plan through. In a time when every asset class is losing value, people seem to clutch on to anyone who will guarantee a return, even if it’s low.
The policy is not suitable for any age class. For Young people (20-35 age), investments in market-linked instruments such as equity and debt funds can better returns for a 10 year period than the returns given by the policy. For older people also the returns from the policy is also not much attractive.

Srikanth Matrubai Bangalore



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1 comment:

  1. M. Karunanidhi, CoimbatoreMarch 22, 2009 at 10:59 PM

    The observaion by Mr. Srikanth is not complete.
    First of all, a Guaranteed return product should not be compared with that of an equity linked plan as Mr. Srikanth has quoted that ULIP will pay better over 10 years tenure.

    The maximum return under Jeevan Astha works out to 7.32% compunded. This is Guaranteed for the next 10 years. Over and above that Loyalty Addition based on the corporation's experience is also payable. As the rate of interest in the financial market is expected to go down in the years to come, this plan Jeevan Astha scores over the other fixed income plans of Banks and Post offices.

    More over the return earned by other investments like Bank and Post offcies attract tax on maturity where as the return from Jeevan Astha is not taxable. So the post tax yield of Jeevan Astha will be the best bet for the HNI investors.

    This plan also offers insurance coverage which is not available in any other fixed return deposits.

    For older people, the investments in Equities may not be advisable unless they are very rich and do not depend on their invested funds.

    So there are many advantages in the Jeevan Astha plan those who did not make use of the plan are the real loosers.

    regards,
    M.Karunanidhi

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