Life Insurance Corporation of India has launched a new product, Bima Account, which offers liquidity, flexibility, transparent charges and guaranteed returns. But its performance has got to be among the worst, as you will make a capital loss for more than nine years
Can a guaranteed return of 6% a year land you in a situation where you make a loss over nine years? Yes, if you buy LIC's newly launched Variable Insurance Plan (VIP) products Bima Account-I and II.
The ads for these products are all over the print media. LIC is splashing full-page ads in The Times of India and other publications. According to the ad, the product guarantees returns of at least 6% per annum. Unfortunately, the ads conceal the most toxic aspects of the product.
While a guaranteed 6% per annum is prominently advertised, there is no mention about the astronomical charges and the simple fact that 6% per annum is on the investment, net of all the charges! The charges are astronomical-27.5% in the first year, 7.5% in the second and third years and 5% each year thereafter, of the premium paid.
The premium you pay for 10-15 years (policy term) of Bima Account-II will break-even in nine years even with a guaranteed 6% per annum for a policyholder of age 45 going for insurance of 20 times annualized premium. What might save the day for Bima Accounts is a hefty bonus from LIC.
At this time, LIC is not willing to comment on the bonus factor. The bonus will be given only if the policyholder pays the premium for the policy term even though the lock-in period is only three years. Remember that while the low returns are "guaranteed", the bonus is not.
If you have to depend on a bonus to do better than only breaking even in nine years, you are taking an investment risk. The irony is that these plans are targeted for conservative investors. The Bima Account products are obviously timed to attract naïve customers during the tax-savings season-the very customers who are in a hurry to shove in up to Rs1 lakh in some financial instrument to get 80C tax savings. Thanks to LIC's mighty network, which gives it a presence in every corner of the country, it will rake in the money, but at what cost to customers?
There are far better plans than the Bima Accounts. Like the traditional plan ICICI Prulife GSIP which gives real 5% guaranteed returns on your investment rather than the surreal 6% guaranteed returns from LIC's Bima Accounts. Moreover, GSIP will also give a bonus. A conservative investor looking for 80C savings would be better off putting money in PPF or opening a five-year tax-saver FD that offers interest up to 9.25% per annum. (IDBI Bank offers this rate today). As such, the funds in LIC's Bima Account cannot be withdrawn during the lock-in period of three years even if you discontinue premium payment. The insurance need can be taken care of by a term plan.
It took the Insurance Regulatory and Development Authority (IRDA) a long time to ban the Universal Life Plan (ULP) that was rechristened as the Variable Insurance Plan (VIP). How did it clear this product and the advertisement? Will IRDA be caught napping this time too?
The Bima Accounts offer you the flexibility of reducing the sum assured during the term of the contract, subject to a minimum limit. When the sum assured is reduced, such change will be effective from the policy anniversary following the date of request. The premiums can be paid regularly on a yearly, half-yearly, quarterly or monthly (through ECS mode only) basis over the term of the policy. The minimum premium is Rs600 per month through the ECS mode for Bima Account I, while it is Rs1,250 per month under Bima Account II. The minimum yearly premium for Bima Account I is Rs7,000 and Rs15,000 for Bima Account II. The policy term for Bima Account I ranges from five to seven years, while it ranges from 10 to 15 years for Bima Account II.
There is an option to pay additional (top up) premiums without any increase in risk cover, to the extent of total basic premiums paid under the policy. A loan facility is also available immediately after the first policy anniversary.
If premiums are not paid within the grace period, the policy will become a paid-up policy. The policyholder has the option to revive the paid-up policy within 12 months from the date of the first unpaid premium. During the revival period, the life cover will cease and no mortality charges shall be deducted. The balance in the policyholder's account during the period of revival will earn guaranteed interest rate of 5% per annum without debiting any expenses. On revival of the policy, the guaranteed rate of interest on the policyholder's account will again be 6% per annum from the date of revival.
The sum assured under Bima Account I ranges from a minimum of 10 times the annualised premium to a maximum of 20 times of the annualised premium up to the age of 35 years, 14 times of the annualised premium for between 36 and 45 years of age and 10 times of the annualised premium for between 46 and 50 years of age.
The market ‘watchdog’ has finally clamped down on entities which have been brazenly manipulating the market. If only they had had the time to read what we have been constantly exposing, a number of hapless investors would have been a happier lot now
Time and again, Moneylife has been highlighting stories of price manipulation. It has been well over two years since our articles have been appearing, fortnight after fortnight, but the Securities and Exchange Board of India (SEBI) has been looking the other way.
Finally, somebody—or something—seems to have woken up SEBI from its deep slumber.
On 2nd February, the market 'regulator' barred 39 entities from "accessing securities markets for allegedly creating artificial volumes and price rise in certain scrips."
These entities belong to the Pabari-Parikh and Walmiki-Shah groups, according to SEBI. The scrips which they manipulated were LGS Global, Spectacle Industries, Goldstone Technologies, Gemstone Investments and Well Pack Papers.
But the sheer irony of this SEBI diktat will not be lost on readers of Moneylife. In our current issue (dated 10 February 2011), we reported that Spectacle Infotek's financials are absurd (despite many websites—which we prefer not to name—claiming that it is a "profit-making" company). We added, "Investors have surely been trapped."
If only the powers-that-be at SEBI had been reading Moneylife, they surely would have had their hands full—and their task cut out for them. And a number of investors wouldn't have parted with their money.
Last year (15 November, 2010), we had written (Insider trading: Why has it taken SEBI so long to wake up?) on how the 'watchdog' has chosen to look the other way, despite the repeated instances of price manipulation and insider trading that we have constantly been trying to highlight.
In November last year, a senior official (who preferred anonymity) had told reporters: "Suspicious trading activities have been noticed in SEBI's routine surveillance of market activities; the regulator has decided to probe further into these cases and enhance its oversight for such matters going ahead."
"Suspicious activities have been noticed in many other shares also but those are minor (emphasis ours) in terms of trade value and nature," this official had said.
Moneylife had argued that this was a contentious statement. "If SEBI had indeed 'noticed' suspicious activities in other shares, why has it chosen to ignore them, in its own words, because they are "minor in trade value and nature"; shouldn't the regulator have come down hard on each and every case of market manipulation, irrespective of the number of shares, size of the company and value of transactions?"
Of course, SEBI did not bother to reply or clarify its position.
ML Bhakta, a Senior Partner of Kanga & Co., one of the country's leading barristers—with over half a century of experience in the legal domain—had told Moneylife: "I still wonder whether SEBI will ever wake up to the problem faced by unsuspecting investors—the sudden rise in prices of unknown scrips without any logic or reason, particularly when Moneylife is repeatedly pointing out instances of such cases."
The market regulator has finally woken up. But is this action too feeble, and too late?
We'll leave that for Moneylife readers to decide.
The leading private airline in the country says there has been a robust growth in the domestic market on continued business confidence
Mumbai: Riding high on robust growth in passenger traffic and improved yields and load factor, Jet Airways has reported an 11% higher net profit at Rs118.23 crore in the third quarter ended 31st December, from Rs105.80 crore in the corresponding period a year ago.
The private carrier's total income rose to Rs3,515.17 crore in the October-December quarter from Rs2,936.42 crore in the third quarter of the previous year, the airline stated.
Jet attributed the surge in net profit for a fifth consecutive quarter, to robust growth in the domestic market, on the back of healthy GDP growth and continued business confidence, reports PTI.
The airline achieved high levels of seat factor and yield growth, as passenger traffic grew by 19% in the period over that in the previous corresponding period. "Passenger bookings are showing encouraging trends in the current quarter," it stated.
While domestic traffic for Jet grew by 14% in the October-December quarter over the corresponding period in FY10, international traffic clocked an 18.8% growth. The airline recorded a seat factor of 76.9% and 80% on its domestic and international routes, respectively. At the same time, yields grew by 6.2% in the period under review over that in the previous corresponding period.
"Jet's international business has posted several consecutive quarters of consistent growth and profitability, reflecting the growing impact of our network synergies, major strategic international code shares and customer centric product and service focus," the airline said.