New LIC Policy - Jeevan Aastha

Dear friends,
Within a few days, A lot of freinds among u 'll receive phone calls from LIC agents on this policy- JEEVAN AASTHA.

Here is a detailed analysis of the policy for benefit for all of u as well as for ur friends. This mail is meant for making an informed decidion.

This new plan of LIC (Jeevan Aastha) although provide gtd. returns but plz. note the NET Yield is variable for different age person due to difference in prem. paid for the same amount of cover.

Some info for this policy is given below.
Minimum Sum assured = 150000 & can be purchsed in multiples of 30000
Max. Sum assured = No limit
Prem. type = single prem. only
Type of policy = Traditional endowment policy with gtd. return
Minimum entry age = 13 years (nearest birth day)
Max. entry age = 60 years (nearest birth day)
Policy term = 5 years or 10 years
in First policy year the SA = 6 times of Single prem. paid (appx.)
From 2nd year onwards SA = 2 times of single prem. paid (appx.)
Maturity SA = 1/6th of original SA
GTD. addition per year = 100 Rs. for per 000 maturity SA for 10Y plan & 90 Rs. for 5 year plan
Loan & surrender value = after completion of 1st policy year

Sample benefit illustration for a 35year normal healthy male stamdard life.
Age of life assured = 35 years
SA = 300000
Maturity SA = 1/6 of Initial SA = 50000
Single prem. = 48975
Term of policy = 10 years
In case of death during 1st policy year claim amount = Initial SA + GTD addition = 300000 + 5000 (@ 100 Rs. per 000 maturity SA for 50,000 maturity SA)
In case of death during 2nd to 10th year claim amount = 100000 (reduced SA) + GTD. addition of 5000 Rs. per year
Maturity amount after 10 years = 50000 (maturity SA) + 50000 (gtd. addition) + 10000 (lyality addition if any, not gtd.) = 110000 Rs.

From investment point of view (it `ll be the main sales pitch to be adopted by LIC agents al over india), the CAGR for above person = 8.43% with Loyality addition & 7.5% with out Loyality addition of 10000 Rs. which is non guaranteed.

My Take on jeevan Aastha plan -

It`s a carefully designed Fixed Maturity Plan (FMP). Yes u read it right, it`s indded a FMP as the term as well as returns r known to u before taking the policy & are almost gtd. in nature (just leaving loyality addition as a non gtd. one).
Being an ins. plan offeed by the largest Ins. co. of india, it`s also Tax efficient too. In the first year the SA is almost 6 times of single prem. hence 20% prem. to SA rule is taken care off at the time of investment. being investment oriented policy, from 2nd year the SA is reduced immediately to have lesser expenses for mortality charges.

The biggest catch lies in the GTD. bonus calculation.
PLZ. NOTE THE GTD. ADDITION `LL BE CALCULATED ON THE MATURITY SA ONLY WHICH IS 1/6TH OF INITIAL SA.

As the maturity amount is fixed for the policy term, the Net yield (CAGR) `ll be higher for persons in the age bracket of 13-35 years & `ll be very low for the persons in 45-60 age bracket. Anywhere from 6% to 7%. This is due to higher mortality charges for this age bracket.

My Judgement - This Policy is not suitable for any age class. for Y`ger people (20-35 age), the 10 year term can provide better returns from market linked instruments like Eq. & Debt. MFs. For older age people the return is not that much attractive. In fact for the persons who r in their 50s, the 10.5% bank FDs & PPF & Bhavishya Nirmaan Bonds (BNB) of Nabard r better option. as By that time the Ins. needs r over & even if one purchase it for ther partial ins. benefit, the real ins. is very poor.

Another reason why you should not invest in Jeevan Aastha
Let us say you have invested Rs 10,000.
In ten years if your amount has doubled to Rs 20,000 - then the return is 72 / 10 = 7.2%. If your returns are 8% - then the time taken to double your money is 72/8 = 9 years.
The formula is -

72 / rate of return = no of years to double your money or
72/ no of years to double your money = rate of return.

The new JEEVAN AASTHA policy - your money approximately doubles in 10 years.
So the rate of return is 72 /10 = 7.2% (approx) and not 10% as projected by your insurance agent.

     Regulars to this Blog know that I hate Combining Insurance with Investment. My advise has always been, and will continue be, For Insurance Take Term Plan, which is the cheapest form of Insurance and then invest the remaining in Diversified Equity Funds. Finally, my advise on Jeevan Aastha is,

- PLZ. DON`T TAKE THIS POLICY. -
Best of luck, 
Srikanth Shankar Matrubai





Thank you Ashal Jauhari and Ranjan for invaluable inputs
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Best Funds for A Cautious Investor

ASiingh wrote :
DSPBR T.I.G.E.R. Reg-G - 10%
Kotak 30-G -25%
Magnum Contra-G - 20%
Reliance Growth-G - 20%
Sund. BNP Par. Select Focus Reg-G - 25%

This combination is also Giant/Large cap heavy so is safer. Monthly allocation percentage indicated. What do you feel ?

SRIKANTH SHANKAR MATRUBAI replied :

Dear Asiingh,
Three of the funds chosen by you would not be a good idea for Cautious Investors., namely DSPBR Tiger Fund, Reliance Growth and SBI Magnum Contra fund.
DSPBR is a Infrastructure Sector Oriented Fund and is very volatile and for a cautious investor will not be a very wise investment.
Reliance Growth Fund has had a terrific past and the future too should be good, but the fund is heavily titled towards Mid-caps and I would avoid this fund too.
SBI Magnum Contra Fund has had a good past, but the frequent change in the Fund Manager is starting to tell on the performance of the Fund and also the Fund`s strategy could change anytime from being a Diversified Fund to a Contrarian Fund, for which it was initially conceptualised.

Instead my 3 funds to compliment your other 2 funds would be
HDFC Prudence Fund - A Balanced Fund which has a unmatched past through bull and bear runs.
DSPBR Top 100 Fund - Again a Fund with a Clean Record.
Fidelity Equity Fund - A Go Anywhere Fund with a good record in Bear Markets (for more on this, visit goodfundadvisor dot blogspot dot com)
So, the final selection would be
DSPBR Top 100 Fund
Fidelity Equity Fund
HDFC Prudence Fund
Kotak K30 Fund
Sundaram Select Focus Fund
By the way, I would have a equal propotion of 20% each in these 5 funds.

Best of luck,
Srikanth Shankar Matrubai





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GSPL - Oversold, Worth a Long Term Buy

Dear All,
Gujarat State Petronet Limited is first company in India to transport natural gas on open access basis and is a Pure Natural Gas Transmission Company.
The Gujarat State Petronet Ltd stock has undergone a drastic correction, more than halving in value from its high of Rs.110 currently quoting at around 26. The recent hammering was more pronounced due to the forced direction from the Gujarat Govt to contribute 30% of PBT for Social projects.
GSPL has a focussed business model as a transporter of natural gas in Gujarat without any exposure to commodity price risk. It would not matter for this company whether Gas prices are going up or down because they don`t own any gas. It is well-positioned in the Gujarat gas market with its pipelines connecting gas sources to existing and developing markets. GSPL is also venturing into city gas distribution through investment in group companies engaged in the lucrative and growing markets.
GSPL will see a doubling in pipeline capacities and quadrupling of Revenues over the next 4 years..the stock should become a core infrastructure play .
Gujarat-The Biggest Natural Gas Consumer :::Gujarat currently moves 18mmscmd of gas per day whereas demand is expected to shoot up to 95 mmscmd by 2010.
GSPL has picked up strategic stakes in group companies — GSPC Gas, Sabarmati Gas and Krishna Godavari Gas Network Ltd — that are setting up city gas businesses in Gujarat and Andhra Pradesh. City gas distribution, which includes supply of compressed natural gas for automobiles, will be a natural diversification for GSPL from its transportation business.
RISKS:
Tarrif Regulations, delay in Gas production from KG basin, 30% allocation to Social projects as mandated by Guj Govt and higher debt.
This is a simple business model which makes money
year in and year out without any glamor associated. Peter Lynch and Warren Buffet would love to invest in this one. And me too.
Investors can buy the stock with a medium to long term view. The Stock should be a steady performer and a Good Dividend play.
Best of luck,
Srikanth Shankar Matrubai,

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Fidelity Equity Fund - HOLD

Dear all,
Fidelity Equity Fund is "go anywhere" fund. The scheme endeavours to invest across the market capitalisation range, and seeks to identify trends ahead of the markets to generate returns. The scheme follows a bottom up approach towards stock selection, and looks to include a number of stocks in the portfolio to mitigate risk, which maybe as many as 75 stocks in a month as per the offer document.
Fidelity Equity Fund with average Assets Under Management (AUM) at around 1982 crores is among the Largest Funds in the Indian Mutual Fund Industry. It has been a steady performer since inception. It has always been in the top quartile within Diversified Funds category. Its 1 year performance has been, as you can expect, nothing to rave about. It is down by 51% but better than the Category Average of -56%.
The Fund has had a policy of having 60-80 stocks in its portfolio since inception. While many feel that this may result in overdiversification, what is noteworthy is that the fund is concentrated enough in large cap with large cap accounting for more than 65% of its portfolio and with no single stock exceeding 5 per cent except for Reliance at 7%.
Its top ten holdings are

Reliance Industries 7.34
SBI 4.56
HDFC 4.19
Infosys Technologies 3.95
B H E L 3.72
Bharti Airtel 3.34
ICICI Bank 3.10
I T C 3.04
Hindustan Unilever 3.04
Cipla 2.87

The diversified investment strategy is reflected in its sector allocation as well, with the top three sectors accounting for a little more than a third of the portfolio. Holdings in each sector include 7-8 stocks. Fidelity Equity aims to focus on companies that are in an investment phase, that are set to benefit from domestic consumption and those businesses that are internationally scalable. Going by the quarterly and half-yearly disclosures, the fund seems to have consistent investment views.

Going by the portfolio and its investment strategy, the fund appears to be conservative and well suited to risk-averse investors. The diversified spread appears to have come in handy during highly volatile market phases, including the recent one.
In recent months, despite the widening valuation gap between large- and mid-caps, mid-cap allocation has remained at about 25 per cent. This large-cap bias may have reduced the fund’s vulnerability to the recent market meltdown. Banking occupies the top slot in the portfoliothe fund has had a bias towards banking since the time of its launch, expecting the sector to benefit from the ongoing capex of Indian companies. In recent times as well, despite fears in the market that hikes in interest rates would hurt profitability, banking continues to be the top sector in its portfolio.
Fidelity Equity Fund has since its inception been my favourite. I recommend you to HOLD the fund, if you do not own, you sure should add the fund to your portfolio. The fund should outperform its Benchmark comfortably in coming years.
Best of luck,
Srikanth Shankar Matrubai,
Bangalore
www.goodfundadvisor.blogspot.com








Also visit my other blog goodtravelplanner.blogspot.com and http://indiahotelstariff.blogspot.com/