I was inundated by clients, friends, foes, readers, ….Is Jeevan Aastha a good investment?
Two friends came to meet me. One had just invested Rs. 100 lakhs in JA, and the other was crying over the fact that the last date had passed. (I was not sure about the closing date anyway). I reassured my classmate that Jeevan Aastha II, III, IV….will be in line, so she should not worry too much.
So going back to the basic question, Is JA a good investment?
I have no clue. I can only analyse an investment – please choose your own poison! In a market where billions of US $ have found their way to almost a ‘zero’ treasury bond, what is bad with a 6-7% instrument?
Oh no! My agent said 10%!
Well, er, so I thought. However it is flat – which means no compounding. So depending on age of the ‘client’ the returns can vary from 4.5% to 7% – after the ‘risk’ charges and administration charges are reduced.
Thank God, it is at least tax free!
Well, er, who told you?
Oh the agent told me that.
No. It may not be tax free too. There is a simple provision in Income tax which was meant to discourage using insurance instruments as investment vehicles. So at maturity (obviously you will not die, will you?) the proceeds are likely to be taxed. If the powers that be at LIC clarify that will make it easier for all of us. Currently to my limited understanding it looks taxable. LIC has created MSA (Maturity Sum Assured) and Basic Sum Assured. They have allowed change of sum assured after one year. Is it a clever play on words one does not know! Hopefully it could be taxable – but please check with your real C A once before you invest your money.
You mean I will have to pay LONG TERM CAPITAL GAINS TAX at 10% on the gains?
Well, you see I no longer practice as a CA (I am perfect so why practice? is my normal refrain) I am not sure about the taxation impact. Though it is logical that it should be treated as a capital gain, in case of withdrawal from a pension plan (at any time) it is treated as current income thus making you pay tax at the highest slab. I am just not sure, that is all.
Thank God it is safe!
By now the investor friend was disraught and the other friend was willing to give me a hug and a kiss. Not that she has used my advise in the past, but now I was no longer a school mate, but was making her feel like a million dollars (should I have said Trillion?).
I had to say that I had heard that LIC was about to use this amount as a ‘Deep discount bond’ with 2-3 very large corporates (in a falling interest rate scenario who would want to take such a huge interest rate risk). However this was to be anyway guaranteed by LIC. So if you believed that LIC cannot do too badly in the next 7-8 years, your money is reasonably safe.
The investor friend was willing to cry, the classmate who did not invest was willing to pay not just for the dinner, but also for the booze. She refused my offer to speak to LIC to find out the launch of JA- II.
An investing class would have set back my friend by Rs. 20,000 for a one day session. He paid a much higher price for not attending!
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