Many of my posts have been saying why one should not buy LiC policies, let me tell you the exact / specific reasons why, and I have these views for the past umpteen years, even pre 2001, when you had NO CHOICE:

1) LiC policies like classic endowment are opaque (this is actually true for all classic end policies , not just LiC). Here the returns one gets will be a sub optimal investment return. From this you reduce LiC’s costs of doing business and you will surely be left with a sub optimal, NEGATIVE real returns over long periods of time.

2) LiC’s top management has only ONE BOSS to please – the ruling party (not the government, note). This is scary. When I see fund managers beating the Sensex and the Nifty, I realise that it is by being underweight on the PSU stocks. LiC does not have this choice.

3) LiC has some excellent fund managers, but they are pushed into a sword fight with BOTH hands tied.

4) On 12th April, Shilpy Sinha has done a lead story in ET about how LiC had to invest Rs. 22,000 crore – most of it as a bail out – in PSU shares. This is awful – clearly proving Rajaji’s words: “Raja bane vyapari, praja bane bhikari’.

5) The government is the biggest BORROWER in the country (Gilts account for more than70% of the debt raised). Thus the government will not give a fair rate. LiC has been mandated to invest a huge amount in G-Secs. Given this combination, a classic endowment policy is a captive buyer, and the government OBVIOUSLY knows this.

6) Corporate governance is not applicable to PSUs and surely not to LiC.

7) The government guarantee for a LiC policy is a huge unfair advantage, but it does exist. The fact that it is unfair means even the spineless IRDA may just force LiC to drop it. This takes away the other ‘excuse’ people had for ‘investing’ in LiC.

8) The government will want to meet is ‘development’ objectives of setting up finance and guarantee companies for doing ‘development’ work in North East, as well as some other areas. Who bears the brunt?

9) When the government decides to ‘support’ Kingfisher (air travel is a very imp part of the infrastructure) it asks SBI to ‘convert’ a portion of the equity into debt. When Kingfisher does not find a buyer for its shares at Rs. 35 a share, who will be forced to pick up the stake? What about Air India’s IPO?

10) Corporate governance my foot. Coal India is forced to sell coal at HALF the international prices. NTPC is told that it cannot price electricity beyond a particular price……and shareholders like LiC even have a seat on the boards.

Sad but true list……and it could be increasing…..