A CPI(M) leader from Kolhapur has alleged that 59,000 investors in Kolhapur have lost money in LIC ULIPs. Agents had created a rosy picture of almost doubling the money in five years. CVC has forwarded the issues to CVO of LIC. Is the lack of understanding about ULIPs to be blamed?
CPI(M) leader Com. Chandrakant Yadav from Kolhapur has written to Central Vigilance Commission (CVC) alleging that 59,000 investors from Kolhapur who received 15%-20% less than their invested amount after five years of investment in Money Plus and Market Plus ULIPs of Life Insurance Corporation of India (LIC). In response to Mr Yadav, CVC has asked the LIC’s chief vigilance officer (CVO) to look into the complaints and take necessary action in the matter.
The letter claims that investors were given impression by LIC agents that their money will be almost doubled in five years. While we cannot corroborate on what agents may have promised, we have come across LIC agents who often mis-sell about a product giving 10% guaranteed returns even though the benefit calculation with respect to 6% and 10% are only for illustration purposes.
As per LIC sources the Kolhapur, investors had put in over Rs104 crore in such schemes. According to Moneylife, this is a case of mass mis-selling to investors who were used to traditional LIC products. They were not told, neither did they find out on their own, the complexities of ULIP, especially of the numerous charges and market linked performance. But, Mr Yadav has a different explanation.
Mr Yadav’s letter states, “Most of the companies (approximately 140) wherein LIC claims to have invested money from these schemes have made tremendous profits during this period. In such a case, where is the money earned by LIC used? Is it being used on fat salaries, bonuses and luxuries of officials and staff? The finance department of Government of India should get a hold and investigate the working of these new schemes launched by LIC and why they are making losses as they claim. LIC is making overall profit. They can very well pay the investors of these schemes and pay them the assured amount. To regain the confidence and credibility LIC should pay the amounts assured to the investors of the above schemes which are profitable, rather than based on stock market.”
The assured amount may be something agents wrongly promise. ULIP do not assure anything, unlike traditional products wherein you can expect some bonus and hence positive returns.
Yadav argues that LIC has earned billions of rupees during the last 60 years. If a particular scheme has failed, LIC should make the arrangements to make the assured payments, rather than making its agents face angry investors. Moneylife has asked LIC about its views on this issue, but there has been no response.
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Every few years, a few books forecast a dire future
There’s a whole gamut of financial and investment books out there. Many are designed to be simply sensational. For example, Dow 36,000, published during the dot-com euphoria, predicted that United States Dow Jones Index would touch 36,000 within a few years. The index has just crossed the milestone after 13 years. Ravi Batra had written a book called The Great Depression of 1990. Pete Peterson had great credentials as a financial and economic expert. In 1993, he wrote a book called Facing Up: How to Rescue the Economy from Crushing Debt and Restore the American Dream, which gave an extremely pessimistic forecast of the American economy. Both proved to be horribly wrong. The debt disappeared and the US had a period of strong prosperity.
The lesson is gloom and doom sells and people naturally gravitate to it. Books like these target our inherent insecurities. Larry Swedroe, a top investment expert (whose book The Quest for Alpha was reviewed in Moneylife), says, “What most people fail to recognize is that many authors aren’t really in the information business. Instead, they are in the fame business.” Many savers buy it, believe it, worry endlessly and, as a result, alter their financial plans which hurt their financial future. Swedroe advises: “Treat doom-and-gloom books just like the rest of the investment porn industry, and not let it affect their investment plans.”