Returns: LIC vs Gold vs Nifty

[solent_mark]

@jcc19240 A really good comparison and I appreciate the efforts you put.

Even my father invested in these LICs and when I see the returns I feel really sorry but this is Information Era and we should ideally learn to invest properly rather than think of what happened 20 years ago.

From what I've learnt, people considered NIFTY risky in good old days. I guess Gold was a better option but I'm not sure if investing in gold bonds was a thing then. They would buy ornamental gold and sometimes use it up for short term purpose like wedding or program at house.

 

[ania]

@solent_mark Investment opportunities have increased and become much more easier to invest s
Compared to
A decade or two ago. Lic have additional 10k deduction in 80c plus government backed hence do many people got in

 

[solent_mark]

@ania Yeah the govt backing plays a crucial role. I agree

Lic have additional 10k deduction in 80c

Additional 10k deduction in 80C meaning 1.6L ? Is that really the case. I didn't know

 

[ania]

@solent_mark It used to be. Not now. Sorry for the tense

 

[zashmaster]

@ania

Investment opportunities have increased and become much more easier to invest s Compared to A decade or two ago

I am an old man here. India had a lot of mutual funds from around 30 years back. UTI's monopoly ended in late 80s. By early 90s, private players were also in. Franklin Prima and Bluechip date from those days. By 95 or so, many debt funds were also launched. (One source - https://www.amfiindia.com/research-information/mf-history)

Tax saving options like PPF were always around.

If people bought LIC policies thinking that they are good, it is a combination of some ignorance and a lot of mis-selling. It definitely is not due to lack of choice. People just fell for the tax-free and govt-guarantee phrases. Do remember that LIC mainly exists for its employees and agents.

Something that popped up in mind. Franklin launched a 'multicap' fund in early 2000s - one of the few new fund offers that I bought. It is interesting that they called it Flexi Cap - they changed the fund name later. Now the entire category is called flexi cap!

 

[ania]

@zashmaster UTI was also missol, promising huge returns but people didn't get. Which led to risk aversion in majority of people.

For us it's common, but not many are financially literate even now, and those are the majority of people taking lic policies and going for safe investments.

Earlier lic policy has additional tax rebate of 10k over 80c limit as told by be parents, that's the only reason they took the policy.

As you said, there weren't those many options and people then had less confidence in private entities over government entities, and ease of investing.

Ar this time, it's much more transparent, easier to compare and dump money.

 

[nutsofacto]

@jcc19240 I think this policy is Jeevan Tarang
He got ₹126000 plus now he will get ₹6560 every year for the rest of his life.....

 

[cheddarcheese24]

@jcc19240 Purchasing a high value term pol early in your career (21-26) is in every way a better proposition than an endowment plan.
Endowment plans are obviously more expensive, but what you really need to pay attention here to is the opportunity cost.
Buying a term pol and investing the remaining amount (that you otherwise would have put in endowment policy), over a substantial amount of time, will yield phenomenal returns. No doubt about it. Compare that with the returns of LIC and the difference is as clear as day.
As everyone said, LIC policies make little sense. But they have other value propositions which make it attractive.

 

[ania]

@cheddarcheese24 I still haven't found other value propositions for most endowment, money-back etc plans.

Only annuity, term, health and cancer cover make sense to me

 

[jimbo57]

@ania One main value proposition I could see is discipline to invest regularly which might not happen in equities unless you setup SIP.

I think SIP dint exist back then.

 

[ania]

@jimbo57 Yep...
Ulip was there, but it wasn't in this form.

Again as I said it's okayish for financially illeterate people but for others there are better options out there

 

[andrewl33]

@ania What is the difference between endowment, annuity and moneyback policies?

 

[ania]

@andrewl33 Endowment is something you get sum assured and probably bonus at the end of policy term.

Annuity is you get monthly, quarterly yearly payments after maturity. It's like pension for you.

Money-back is where you get lump some money at the end of policy period, as well as some % of premium paid or assured during the period you pay premiums

 

[andrewl33]

@ania thanks.

If so, why do you say that annuity makes sense compared to moneyback?

 

[ania]

@andrewl33 Money back, your only get lumpsum amount and few more payment during premium paying period.

Annuity is lifetime payment, which you mostly take to replace your monthly income once you retire. It's not suitable until you're working out you have capital which you don't need in the long run since annuity rates are decreasing year by year

 

[andrewl33]

@ania ooh.. k.

Thanks for clarifying this.