Got a question on ASK US “Please let me know your take on the LIC Samridhi Plus, whether one should go for it. Any other option which will be better than the LIC Samridhi Plus. Is Guaranteed Highest NAV usually preferred or not?” and I simply replied “My answer is NO”. So let us understand why I said NO to this scheme.
First check – What is LIC Samridhi Plus (Table No. 804)
LIC’s Samridhi Plus is a market linked insurance plan that claims that it safeguards your investment from market fluctuations, so that your investments are protected in financially volatile times. This plan will offer you benefit when the term of the plan completes and the payments are based on the highest Net Asset Value (NAV) over the first 100 months of the policy, or the NAV as applicable on the date of maturity, whichever is higher. NAV of the fund will be subject to a minimum of ` 10/-, so Rs 10 is Guaranteed.(but not your investment amount)
Let’s me share a presentation on features & benefits of LIC Samridhi Plus & later you can check 5 reasons why you should not invest in this yojana.
LIC Samridhi Plus Features & Benefits
ULIP plan 804 –
5 Reasons why you should not buy LIC Samridhi Plus
1 Because LIC Samridhi Plus is an Insurance Scheme
Oh! What went wrong everyone knows this is insurance policy from LIC.
We have always said that one of the biggest mistake people do is mixing insurance & investment. If your need is just insurance, that is, you just want to build up a cushion against the risk over your life this policy is not for you. If you are aiming that you get good returns that market is offering over a long period of horizon, again… but this policy is not for you.
2 Because LIC Samradhi Plus is a Highest Guarantee NAV Scheme
First people confuse Highest NAV with Highest return. Second highest guarantee NAV does not mean that the amount in your investment account is guaranteed. (Because expenses are charged by redeeming units)Also Read: Psychology of an Indian when it comes to Life Insurance Story of a Life insurance Advisor
Let’s understand what is highest guaranteed NAV is?
“Most of them use an investing strategy called dynamic hedging or constant proportion portfolio insurance (CPPI). Under this, the fund manager will constantly reallocate money between debt and equity classes to assure the previous highest NAV.
In year one, your investment will be split between debt and equity in such a manner that you get an assured NAV of Rs10 at the end of 10 years. Over the year, if the equity market goes down, your capital stays put as you have bonds. But if the market goes up, you will see the NAV rising. So, let’s say, we are at an NAV of Rs15 after a year and the market sinks 15%. The fund manager will sell equity and buy bonds to secure the highest NAV till then.” Source Livemint
If you can notice it works against principal of equity investing. Rule says invest in equity while market is down but fund do just opposite of it.
Last year LIC launched similar scheme even with more pomp & show by the name LIC Wealth Plus. Its NAV is right now below 10 and mind you expenses are deducted by reducing units & not from NAV. In the same period SENSEX has delivered return of 15% & even Monthly Income Plans have delivered good Returns.
Also read what we wrote at the time of LIC Wealth Plus Launch.
4 Because LIC Samridhi Plus is playing Gimmick with Accidental Benefit
I read it in Economic Times “Accident benefit option is also available under this plan that will be equal to the life cover up to a maximum of Rs 50 lakh, subject to certain conditions.”
Why they always add condition & * with simple things.
It’s not free – they are charging for it.
Accident Benefit charge – It is the cost of Accident Benefit rider (if opted for) and will be levied every month at the rate of ` 0.50 per thousand Accident Benefit Sum Assured per policy year.
5 Because LIC Samridhi Plus is Expensive
Let’s compare LIC Samradhi Plus regular premium expenses with equity diversified Mutual Fund.
- Premium Allocation Charges: 6% in first year & 4.5% thereafter. (Mutual Fund NO Entry Load)
- Fund Management Charges: .9% every year. (Mutual Funds average charges 2% but you have variety of funds available to choose from & you don’t have compulsion to stick to a fund)
- Guarantee Charges: .4% every year. (Guarantee is a gimmick still they are charging for it)
- Mortality Charges: This is the cost of life insurance cover which is age specific and will be taken every month. The life insurance cover is the difference between Sum Assured under Basic plan and the Fund Value after deduction of all other charges. (Even if you buy term plan you have to pay mortality charges)
- Policy Administration charge in LIC Samridhi Plus `30/- per month during the first policy year and ` 30/- per month escalating at 3% p.a. thereafter, throughout the term of the policy shall be levied. If we convert Policy Administration charges in yearly Rs 30 x 12 = 360. Now if we see it in percentage terms it is 2.4% every year if premium is Rs 15000 yearly. I am never able to understand this charge. (In few other ULIPs I checked this charge sometime goes as high as 5-7% every year)
Right to revise charges in LIC Smradhi Plus (Source – LIC website): The Corporation reserves the right to revise all or any of the above charges except the Premium Allocation charge, Mortality charge and Accident Benefit charge. The modification in charges will be done with prospective effect with the prior approval of IRDA.
Although the charges are reviewable, they will be subject to the following maximum limit: Policy Administration Charge – `60/- per month during the first policy year and ` 60/- per month escalating at 3% p.a. thereafter, throughout the term of the policy. Fund Management Charge: The Maximum for Fund will be 1.30% p.a. of Fund Value. Guarantee Charge shall not exceed 0.60% p.a. of the Fund Value.
So charges can be hiked & they are not hiding it.
My View on LIC Samridhi Plus
If I were a film critic my rating would have been some what like “waste of time (& money also)” or “must avoid”.
The thing that pains is a responsible company whom billions trust with their money, when it comes to last days of year and it knows that this is the time most people will complete their tax savings and every year launches a product just to boost it sales and forgets the investor’s benefit(Read: Exit strategies for mis sold insurance polices). Remind me of a sher (poetry):
“EK HI ULLU KAFI HAI BARBADE GULISTAN KARNE KO,
ANJAME GULISTHAA KYA HOGA JAB HAR SHAKH PE ULLU BAITHA HO.”
Would you like to share your views or ask any question?