Middle class myths….and may not be too bad after all…..
I was not sure whether to call these investment myths or investment myths, so decided to call them middle class myths!
1. LIC is a good investment: Most (if not all) bought LIC’s products as a method to defer or save Income tax. They did not think of life cover, returns, or anything else. In some cases the agent was a friend or a relative, so it was literally thrust on them.
Fact: LIC is a lousy investment product. If a person had invested this amount in the Sensex or even in PPF, he would have got a far superior return even after deducting the cost of a term insurance premium!!
My take: if the guy had taken a term and invested in a SIP he would have been better off, in most cases. However if he were to keep it in a bank account (which is what 98.5% of Indians do) he would have been better off buying a LIC policy! Please remember all the LIC returns came from the tax concession (the shareholder of LIC wanted the moolah, right)!!
But still ask the Government – they have really benefited by owning 100% of LIC!!
2. Rent vs. Buy: i have written about this too many times. Search and you shall find!!
3. Equity is risky in the long run – again written too may times…
Vidya
I know !!! Although I wish I had known …. a few years back !!! Then being financially illiterate/naive – I had viewed colleagues who had 3 LIC policies with awe !! 🙂 Their explanation of tax breaks confused me but I did end up with one LIC policy …. and thank god only one ! 🙂 For tax ofcourse 🙂
I sometimes think that whether BE / BA / BCom or any degree … financial literacy should be part of the curriculum ! 🙂
subra
Do not leave out the Chartered accountants please! they need it just as much. Met a CA yesterday who has a credit card balance outstanding, a personal loan, and of course a car loan and a housing loan. He puts about 36k in a LIC policy with a poor life cover. His loans are at a price ranging from 13%p.a. to 49%p.a. and at best he will earn about 7%p.a.
I asked him a copy of his membership certificate.
Ashal Jauhari
Dear Subra, More than the article, I enjoyed this CA thing in the comments section. I’m shocked a financially qualified person can do such suicidal acts. I was also in the same boat of LIC & LIC & only LIC for investment + insurance but jumped very early & now a days have sufficient term cover from pvt. insurers.
Thanks
Ashal
Sreedhar
Dear Subra, Firstly people need to be educated to differentiate insurance and investment. LIC sells insurance products and the first thing a genuine concerned person will suggest is to go for a term insurance. And, as you have said for investments go for equities (again with proper homework) or simply buy/sip index! Another basic thing ppl need to be educated about is the power of compounding!!
Ronak Hindocha
IMHO the finance products are very confusing for a common man. I’d argue, ask a ULIP seller some technical questions and he will be speechless. It is the duty of the advisors to start making life simple for the clients. Just charge a fee equivalent to what you would get from a product commission and give the client the right advice.
BTW, cleaning up the mess is quite a herculean task. Just try surrendering an LIC policy and you will know what I’m talking.
rohit
subra you must be joking -really LOL
“Do not leave out the Chartered accountants please! they need it just as much. Met a CA yesterday who has a credit card balance outstanding, a personal loan, and of course a car loan and a housing loan. He puts about 36k in a LIC policy with a poor life cover. His loans are at a price ranging from 13%p.a. to 49%p.a. and at best he will earn about 7%p.a.
I asked him a copy of his membership certificate.”
Srinivasan M
Subra Sir,
Shocking to read a CA get into so much debt. I assume he should be earning very handsomely. So leading a leveraged life style. Also to buy a policy with very less life cover, can’t belive a CA can do that. Subra sir, please tell me what they teach in bcom, mcom or CA. I come from a non-commerce background, so curious to know the syllabus. But surely, Iam getting serious doubts on a financial degree’s usefulness.
Sujatha
Sir,
Please advice which is the best way of ivestment for IT professionals like me. I am planning to work only for the next 5 years and after that I’ll be a homemaker. KIndly suggest me a safe investment plan with gud returns.