How LIC is eating your money?

The recent market crash had made people switch from stocks to LIC & Debt funds.  I would say, please understand the facts before moving to LIC.

Inflation

Inflation is value corrosion to Indian Rupee.  If we purchase 100 Rs. goods today, after one year we might need to spend 104 Rs. to purchase the same.

Inflation on average standard is taken as 2% to 4%, compounded.

What LIC is doing?

LIC is also working for profits, the profit they take is the loss you make!

Taking a traditional 20 year plan with whole amount paid on maturity, I can give the following table.

Here you are paying 25 thousand rupees per year, for 20 years.  You pay 5 Lakhs & you receive 5 Lakhs after 5 years.

See the value corrosion.

image

So you can see that you paid 5 Lakhs Value & you received 3.5 Lakhs Value.  There is a loss of 1.5 Lakhs in Value!

In the case of 4 year money back plan, you need to adjust the corrosion every 4 years.  Some LIC policies, will take care of free insurance after the maturity periods.  You need to do careful analysis in evaluating them.

Go for Term Plan

I would say, Term Insurance Plan is the best insurance plan as it purely deal with the RISK.

A term plan of 500 rs. per year would yield the same 5 lakh coverage.  The rest 24500 rs. can be invested on 10% interest yielding bonds or deposits.  Tax advantage of LIC can be achieved through these too.

You can see the difference here:

image

The term insurance plans are less promoted by agents as the COMMISSION is less.

Think again, the LIC is an institution, their business is to pool money, invest, multiply & give the deflate money back to you.

Please understand the other side before proceeding.

Back to Stocks

I would still recommend stocks as it fights well with Inflation.  Through proper diversification & buying the under-valued stocks, in the long term we can accumulate massive wealth.

All the top riches in the world are made through Stock Market.

  1. Warren Buffet through Berkshire Hathaway
  2. Bill Gates through Microsoft stocks

Our Portfolio

Even in the midst of crash, our portfolio is showing 5% profit.  Few months back, It was on 30% profit.

image

Summary

Think Long Term We believe in long term investing & will continue to buy good quality stocks @ right prices.  We cannot see any single opportunity other than NIFTY crossing PE Ratio limit for selling the stocks.  We need to hold patience till 2016-17 at least.

Invest Monthly Every month, 25% of savings can be diverted to stock market. 

See Opportunity on Crash If market goes further down, it is a great opportunity to buy 10 Rupee Material spending 5 Rupee!

Continue Learning Knowledge is the key to success.  Learn, Think & Act smart πŸ™‚

2 Responses to “How LIC is eating your money?”

  1. vy3r Says:

    Did a quick calculation of these stocks. You guys have net more than 100% returns since you published this πŸ™‚

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