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You said that insurance policies like Jeevan Anand and Jeevan Saral offer very low returns and they don't even beat inflation. Can you explain the calculation behind this comment? Also, tell me what are the investments that one must consider when planning for a lumpsum amount needed in future? Thanks and it is a great platform for all my queries. I regret being late on this platform.
- Ashish Tiwari
LICs Jeevan Anand and Jeevan Saral policies are endowment policies. They have an element of insurance along with investment in them. They offer you a lump sum amount on maturity or on death. Typically, endowment policies offer around 4-6% returns. The 20-year average inflation is approximately 8%. That means you are earning less than the rate of inflation. In other words, your investment has not offered you any "real returns" at all. On the contrary, the money has lost its value.
That is why it is very important to invest in an avenue that will give you more returns -- at least 1.5 per cent to 2 per cent -- than the rate of inflation. This is especially crucial when you are investing for long-term goals . That is why we believe that investors should go for equity mutual funds schemes to fund their long-term financial goals of five years and above. Equity has the potential to offer better returns than other asset classes over a long period.
If you are a new comer to the stock market, choose a top-rated balanced scheme and start investing every month via a Systematic Investment Plan (SIP). If you are familiar with the stock market, you can invest in a diversified equity scheme. You must continue with your SIP investments irrespective of the market conditions. This will help you to average your purchase cost and enhance your returns.
This article was originally published on February 19, 2016.
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