Me: "This is ridiculous! The regulator does not allow projections of more than 10 per cent for equity-oriented products. And this policy has projected returns of 25 per cent per annum, for the next 20 years."

Client: "The agent assures me it will happen. Plus I get a life insurance cover of Rs 1,60,000, free."
Me: "He will not be around within two or three years! 20 years is a long way."

Client: "But isn't it true that 30 per cent has happened before?"
Me: "Investment in equity is appropriate, but the assumption should be at around 14-15 per cent. The index average is about 17 per cent for the last 15 or so years. This is because of the growth in the last couple of years. So, it is reasonable to expect 15 per cent."

Client: "What about the projection of 50000 by 2020? And the agent's asking me to go for the balanced option?"
Me: "Even if it is true, it is about 2.5 times the value now. This means that within 12 years from now, your investment will become at least 2.5 times ie, about Rs 3,25,000."

"However, the agent is guaranteeing that it will grow 33 times in eight years (2020 to 2028) ie the 20-year of the policy term?"

"Further more, they plan to achieve this with a maximum of 80 per cent allocation into equity, the growth option! And on top of that, the agent is asking you to take a balanced option."

Client: "So, this is no good?"
Me: "Forget about this deal! If you invest Rs 1,25,000 in equities, you’ll get about Rs 20,00,000 in 20 years (assuming a 15 per cent growth). Above that, is a bonus. If we do profit booking once in three to five years, there could be more bonus. Also, your entry load will be much lesser."

I wonder how many people will be disappointed with the bitter experience of such fantastic deals.

My advice: Be cautious. Be prudent with your money.

Disclaimer:The contents of the above articles are the intellectual property and copyright of the author, Kartik Jhaveri. No part may be used or reproduced in any form or manner. If you choose to act upon the information contained in the above article it is at your own risk. This article is purely educative and you are strongly advised to consult an expert prior to taking any significant decisions.

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e-mail: Kartik Jhaveri

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