Why investing in LIC is a very bad idea….

Long time ago, when I knew money needs to be saved, but cared little to know about finance or economics I had purchased a pension plan from LIC. Swayed by a sweet speaking, erudite LIC agent I took in a 25 year pension plan (only thing I knew those days was that investment had to be long term). The monthly premium was quite small- it was a stepping stone after all, out from Post office savings and banks FD’s to the exciting world of equities and bonds.

With monthly SIP’s automatically getting deducted, I did not follow up on the performance of my investment for years. As years passed on and when my interest on all things finance kindled, I remembered my first LIC investment – How was it doing? What were the returns? And many such plethora of questions rushed to my mind. After many years, I logged into my account and checked the values. Well the balance was more than the investment. That was a good sign.

Then I plugged in the numbers and the preliminary returns turned out to be a measly 4.1% ! I wanted to calculate the exact returns on my investment (XIRR) for which I needed to know the monthly deductions (various charges levied by LIC), NAV at which the units were purchased and the date of purchase every month.

So I called up the agent and asked him to give me these details. He was flummoxed at my request, looked at my numbers and told me- “well you have for a 5.5 % return.”. I told him “That is simple interest, what about compound interest, or what about IRR, XIRR?”. To which he replied my LIC app. Does not give those details!! Realising that it was a futile endeavor, I decided to write to the LIC’s regional office to give me the NAV details. After beating around the bush in a couple of mail’s, LIC finally admitted that they had NAV details of only 1 year and they can’t find the other 6 or so years.

“The details are not important, they are required only to calculate your returns you see… “ was the indirect message that was being conveyed.

With so many people investing in LIC, I wanted to know how good their investments are doing. Are they making justice to people hard earned money? So I began my research- it was pretty simple, I only had to read LIC’s balance sheet.

This is what I discovered.

Year	Income from Investments (Crore)	Investments (Crore)	Returns	Average return on a Bank FD during the same period	Difference
2005-06	35,479	524,017	6.80%	8%	1.20%
2006-07	40,572	613,267	6.60%	8.20%	1.60%
2007-08	47,999	756,891	6.30%	8%	1.70%
2008-09	56,583	815,484	6.90%	8%	1.10%
2009-10	67,198	1,095,841	6.10%	7.80%	1.70%
2010-11	77,667	1,266,539	6.10%	8.20%	2.10%
2011-12	90,267	1,349,532	6.70%	8.70%	2%
2012-13	103,882	1,486,457	7.00%	9%	2%
2013-14	118,097	1,684,690	7.00%	9.20%	2.20%
2014-15	135,483	1,946,249	7.00%	8.50%	1.50%

As you can see, LIC has done a pretty miserable job when it comes to managing people’s money. It has been lagging behind even bank FD’s by more than 150 basis point and in some years even by 200 basis points. If one had kept their savings in a banks FD, they would have generated better returns.

Also, as you can see from the above table, the money people are investing in LIC is certainly growing. Thanks to the “Govt. backed up” tag it has got. Government has been milking its cash cow for many years and will continue to keep doing so. Well as long as government interference continues, all your hard earned money in LIC is certainly doomed.

Well, LIC is anyway a poor investment disguised as an insurance, which is generally inadequate. So to all my friends reading this get wise and forget LIC…