I was never a fan of Life Insurance Corporation of India. I has two LIC money back policy (Bima Gold), which I have closed recently. The endowment policy is still running but I am slowly building up the courage to close that policy and take whatever surrender value has accrued. Yes, it will be a big loss but it’s better to get robbed one time than getting robed yearly for the next 25 years. Sounds stupid? Well then it’s going to be a long discussion. But in short if you calculate the bonus rate of LIC policies, the return comes at a alarming rate of 4-6% per annum. Well at least I have figured out better ways to park my hard earned money. Besides Insurance should be taken as a standalone basis and not as a mode of investment (99% of Indians mix insurance with investment). But let LIC continue with its policies and their periodic fleecing – I am not much interested. If you are a LIC fan God bless you. But what concerns me are some reports in newspapers of late comparing LIC as the next UTI. And i agree with the points. For the uninitiated in 1993 UTI mutual fund failed and the government had to pitch in to protect the investors. The government had no binding to bail the investors out but still it did that in some larger self interest. One of the reason was UTI money was always used by the government for projects for which getting money was extremely difficult. So the taxpayers’ money was used to bail this stupid UTI. And in the process the government also shielded the big honchos inside UTI who led to its fall. Now LIC is also following the same route. Recently the IPOs of public sector companies were not much subscribed by institutional investors. But LIC mopped up all the shares. If the IPO valuation was attractive why did the institutional investors and other private parties not show any interest? Something must be wrong. So you can easily sense that in this case LIC money is been used to bail out the IPOs, which is like bailing out the government itself. LIC insurance money is invested in various places for which not much accountability or transparency is there. And this trend has a long history. Besides like UTI, LIC also pitches its product with a hidden assurance of government gurrantee. So I feel we should not be surprised if something like UTI happens to LIC as well. Every king goes to grave someday. And LIC is no exception.
Tuesday, March 23, 2010
LIC as the next UTI?
I was never a fan of Life Insurance Corporation of India. I has two LIC money back policy (Bima Gold), which I have closed recently. The endowment policy is still running but I am slowly building up the courage to close that policy and take whatever surrender value has accrued. Yes, it will be a big loss but it’s better to get robbed one time than getting robed yearly for the next 25 years. Sounds stupid? Well then it’s going to be a long discussion. But in short if you calculate the bonus rate of LIC policies, the return comes at a alarming rate of 4-6% per annum. Well at least I have figured out better ways to park my hard earned money. Besides Insurance should be taken as a standalone basis and not as a mode of investment (99% of Indians mix insurance with investment). But let LIC continue with its policies and their periodic fleecing – I am not much interested. If you are a LIC fan God bless you. But what concerns me are some reports in newspapers of late comparing LIC as the next UTI. And i agree with the points. For the uninitiated in 1993 UTI mutual fund failed and the government had to pitch in to protect the investors. The government had no binding to bail the investors out but still it did that in some larger self interest. One of the reason was UTI money was always used by the government for projects for which getting money was extremely difficult. So the taxpayers’ money was used to bail this stupid UTI. And in the process the government also shielded the big honchos inside UTI who led to its fall. Now LIC is also following the same route. Recently the IPOs of public sector companies were not much subscribed by institutional investors. But LIC mopped up all the shares. If the IPO valuation was attractive why did the institutional investors and other private parties not show any interest? Something must be wrong. So you can easily sense that in this case LIC money is been used to bail out the IPOs, which is like bailing out the government itself. LIC insurance money is invested in various places for which not much accountability or transparency is there. And this trend has a long history. Besides like UTI, LIC also pitches its product with a hidden assurance of government gurrantee. So I feel we should not be surprised if something like UTI happens to LIC as well. Every king goes to grave someday. And LIC is no exception.
