The biggest cheating in the Financial Services business is done by the Government of India. No I am not talking about Income tax.  I am talking about LIC.

The government runs LIC and to help LIC it created a section 80C. Most people have got addicted to this section and to this product. So people invest in LIC’s products and the government makes LIC buy government securities, and government equities so that it can invest the premium money. People are told not to worry because it is government guaranteed. So LIC which is NOT a very efficiently run organisation can afford a huge infra, takes the money mismanages it (thanks to political interference) and gives the policy holders sub-optimal returns. This story has been played out a million times. Or more.

So LIC has ton loads of PSU stocks, psu debentures, and tons of government debt. There is a very good chance that many issues will not be subscribed to. Like any PSU investment arm the choices of equities leaves a lot to desired. You see some shares in the portfolio and keep wondering how it could have entered the portfolio!!

The products are themselves sold by a dedicated agency force and most of the products are opaque and expensive. The end user has no clue about the bundled product. The structure of the product, the cost break up etc. are not known to anybody.

However the government has nicely made the ‘Investment rules’ for the non government life insurance companies also. Again it contains a lot of Gsecs, So the yield that the poor investor (let us call him saver, he can feel better) gets is pathetic …

Before the government appoints committees on how the ‘cheating’ agent is misselling a great product, let us create a  committee of independent fund managers to see / comment on the way the LIC money has been manhandled by successive governments.

The poor Rs. 200,000 per annum typical agent can only sell a product. Let us see what the people creating the products are doing. Of course other than sitting on committees to over see how the ‘bali ka bakra’ is cheating the ‘bali ka bakra’. The agent and the clients are the weakest link. ‘Kamjor kadi’ as they are called.

Let us see what the elephant, bison, lion, tiger, hippo and rhino are doing.

Sick of such committees and suggestions. Stop blaming the sheep. Poor thing!! If all agents were so scheming and smart, why are they not in Porsche, Merc and Audi?

Yes some of them are, but they are one in a million.

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  1. nothing can be more true
    in a recent auction of disinvestment for oil india or ongc , I read somewhere in business standard that major buyers was LIC.

    they had to salvage govt’s badly planned initiative, this is slaughter of public money which LIC has access to. Subra sir continue to do the good work, you are not short of ideas

  2. Recently on janmashtmi we were discussing investment and all my family members were in favour of LIC policy and gold investment as its safe. It was fun and result was 0/0. They asked where can we keep extra money its better to invest in money back and invest the sum returned in PPF. It was hell of a discussion.

  3. I think blaming government for everything is simple and old way of getting popular. Just see the other side. In our country government has started all major companies to provide basic needs like light water steel power etc. They started LIC which provides insurance. Lets try to put some serious suggestion on improving rather than selling to cash rich competitors who will eventually make more money for themselves. BTW I think its one of the trusted one and I have many policies for myself.

  4. Paramjeet Singh Kabra

    I wholly agree with you Lokin Shah. We should encourage LIC and gold as investments. They are safe after all. For every successful company in the market there are 100 which do not give any return to the shareholder, LIC is the best. I pay about Rs. 200,000 as annual premium and am very happy with my investment in LIC.

  5. @Lokin Shah ji

    “Lets try to put some serious suggestion on improving…..”

    Actually he question has already been answered in the article 🙂

    “…. let us create a committee of independent fund managers to see / comment on the way the LIC money has been manhandled by successive governments.”

    @Paramjeet ji

    “For every successful company in the market there are 100 which do not give any return to the shareholder…”

    You may have had some bad experiences earlier but you could consider one of the professionally managed diversified equity mutual funds.

    That “safe” LIC policy may fetch a 5% annualized return over 20+ years, equity fund can get a 15% over a similar timeframe (estimate: 6% GDP growth adjusted for 6% inflation & 3% to compensate for equity risk undertaken). That *excess* 10% return from a mutual fund compounded over 20 years can transform investor’s financial health altogether. Please use a spreadsheet or a calculator to see the numbers for yourselves.

  6. @ Lokin Shah, Please stick to LIC. Govt needs ppl like you to lock money in LIC so that they can use that money to buy PSU stocks.

    Some of the stocks may not be bad. But the timing of buy and the price paid by LIC were surely horrible.

    Meanwhile the ignorant ones like me and Sarath and some others will continue investing in good euqity MFs.

    Note – Should i insert a sarcasm alert 🙂

  7. the point that I most agree is they made the private life insurance copmany also to be a laggard! curtailed innovation and risk taking ability, so that they could protect this monolith.
    Usain bolt got bolted literally..

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