Time- Time ki Baat hai : Part – I

“I have seen the world Son!! Not for nothing I have these gray hair” said Mr. Anand Desai, 56 Years old businessman to his son Niraj Desai, 28 years old professional working with a leading IT company. “No Dad, I am also a post-grad in technology. Not a kid anymore.”

Well the discussion started with, Niraj wanted to take a term insurance plan for himself and do an SIP to take care of his retirement fund, whereas Mr. Anand was pushing him to buy an endowment plan.

“Lets take your example Dad, you bought an endowment plan for 20 years in 1990 with a sum assured of Rs. 50,000. The plan matured in 2010 and we got a total amount of Rs. 1,02,500 (Sum Assured + Bonus). If we add up the premium paid up in all these years, it itself adds up to around Rs. 52,000. Now, we are thankful to God that you were safe and sound all these years. Let us imagine for two minutes, if something were to happen to you in say 2001 (when I was still studying) then the sum assured which we would have got was to be somewhere around Rs. 60,000- 70,000. What do you think, we would have been able to do with that amount? Also, how significant is the maturity amount which we have received now?” Said Niraj putting his argument forward.

“You mean to say, I was a fool to do that at that time ??” asked the enraged father.

“No Dad, your decision at that time was right taking into account the situation at that time. In those days,

  1. If you wanted to save tax, there was a compulsion to invest Rs. 20K in PPF, 20K in NSC and 20K in LIP. So largely, the government itself made the investment plan for you.
  2. The tax rate was high and thus a tax relief was a good enough incentive to take the endowment plan. Retirement planning was not “truly” the concern to invest.
  3. The interest rates were high and were themselves enough to beat the erstwhile inflation.
  4. Added to that, the stock markets weren’t so well regulated and there weren’t too many players in the mutual fund industry. So you didn’t really have too much of a choice to plan your investments.

Thus, your decision at that time was right to a great extent. But you had made this investment expecting that you will lead a comfortable retired life with the maturity proceeds. Now you think, how sufficient would this maturity amount of Rs. 1,02,500 be to fund your retirement.

In fact, we have been lucky that this amount is almost double than what we have invested in a time span of 20 years. The reason for the same is, the high interest rate era for at least 7-8 years in the earlier tenure of the policy (From 1990-1998). If the similar policy was taken in say year 2000 or today, then due to lower interest rates, the maturity proceeds would not be enough to fund even one year of retirement, forget about the entire retired life” explained Niraj.

“But in a term plan, you won’t get anything back when you survive. Do you?” doubted Mr. Anand.

“Let me explain with the help of this example, Dad. If I take an Endowment Plan with a life risk cover of Rs. 15 Lakhs (which might be somewhat inadequate) and a term of 30 years, my annual premium works out to be around Rs. 50,000. At end of the term, I will receive the sum assured of Rs. 15 Lakhs plus the bonus might make it close to Rs. 28 Lakhs after 30 years. Now, here I have a lower risk cover and even the Rs. 28 Lakhs would be a very insufficient amount for retirement taking into account inflation all these years.

As against this, If I go for a term plan with a life risk cover of Rs. 25 Lakhs (which is quite necessary), I can avail it for a premium of Rs. 3,500 – Rs. 4,000 p.a. I agree that I will not get this amount back, but now at least I am substantially covered for my life risk.

Now, the balance Rs. 46,000 which I am saving, I can invest in some good diversified mutual funds through SIP. That ways, I would be able to generate a return of around 12% on my investments in the long term and would get around Rs. 1.36 Crores after 30 years for my retirement. So I am better off with a higher risk cover, higher retirement kitty and also no obligation to invest every year and also I have complete liquidity available with me. This liquidity would be available to me in the endowment plan only at the cost of surrender charges” Said Niraj.

On this Mr. Anand raised another doubt “If Endowment plans were so bad, why are all the insurance companies launching new endowment plans these days?”

“The reason for all these companies coming up with traditional plans or endowment plans is quite different. ULIP was the hot favourite of all these companies and agents till the time they were allowed to deduct charges as they like and also paid hefty commissions to the agents.

From 1st Sep 2010, new IRDA guidelines have restricted them from high charges and thereby paying high commissions to the agents. Thus, now neither the companies nor the agents are too very interested in selling ULIPs.

Thus, now they are coming up with traditional plans which are even more non-transparent than ULIPs and give leeway to the companies to deduct heavy charges, pay heavy commissions without the investor having remotest idea about the same. Even the agents are being told by the companies to shift their focus to traditional plans by scaring the investors about the markets being at such high levels.” Explained Niraj.

Mr. Anand was thoroughly surprised with all these facts so far. He asked, “So basically it is all commission driven. Nothing else? And how can these people misguide us like this ?”

“There is something lacking at the part of the investors also, Dad. In India, they call it ‘Buyer Beware’. We are hardly beware of what we are buying and why we are buying – especially when it comes to financial products. One of the biggest motivators for us to invest is ‘pass-back’ by the agent. We drive away the fees-based advisor who might be giving some good advise to us even if those products do not fetch him good commissions. That is when these guys start doing wrong-selling of products just to earn high commissions. If we want to get genuine advise and good service, we have to change our ‘Free-Lunch’ mindset. Once the advisors start getting paid for doing right things, they will be more motivated to give genuine advise.”

“You are so very right Son. I was really living in very wrong perceptions.” Said Mr. Anand, having tears in his eyes and smile on his face.

“You are not wrong Dad. Its just that some things which were right once upon a time, may not be right today because of the changing scenario. Ye Sabb ‘Time-Time ki baat hai’ and we got to change with the changing times” Smiled Niraj.

We look forward to your feedback and comments on the above article. Please feel free to contact us on saurabh.nidhiinvestments@gmail.com if you have any questions.

(All the characters in the above article are hypothetical. There resemblance to any person, living or dead, will be purely coincidental)

Published by professorbajaj

Prof. Saurabh Bajaj is an Author, Mentor, Motivational Speaker and Wealth Planner. He has done his MBA from Narsee Monjee Institute of Management Studies (NMIMS) Mumbai, one of the top 10 management institutes in India. He holds the prestigious FRM (Financial Risk Manager) degree awarded by Global Association of Risk Professionals (GARP), USA. Till date, there are less than 15,000 professionals in the world, who have been honored with this degree. He has also been awarded CFGP (Chartered Financial Goal Planner) Certification by AAFM (American Academy of Financial Management). After his MBA, he joined J P Morgan, the second largest Investment Bank in the world. He has worked with J P Morgan as Risk Analyst for more than two years. Prof. Bajaj also holds an Advisory certification awarded by AMFI (Association of Mutual Funds of India). During his stint at Bombay Stock Exchange, he has handled Investment Management and Treasury operations of the BSE Corpus. He has set up an entrepreneurship venture in the field of Wealth Planning and Investment Consulting under the name “Nidhi Investments” and holds the profile of CEO. Prof. Bajaj sits on the Expert Panel of CAClubindia.com and MBAClubindia.com as Investment Expert. He is actively involved in investor education through his blog www.professorbajaj.com which has a readership from 78 Countries all over the world. His articles are also regularly published in caclubindia.com , mbaclubindia.com , totalca.com , charteredclub.com, bankbazaar.com and lawyersclubindia.com . He has been awarded the title of “Best Article Writer” from caclubIndia.com in Jan 2012 and has been selected amongst “Top 5 Technical Writers” from all over India in Feb 2013. He has been invited by various TV Channels like SPIN TV, CNBC TV18, UTV Bloomberg Etc for programs like "Expert Advice" , "What Markets Want ", "Budget Analysis" etc. He has been invited by Several organisations like Lions Club, Rotary Club, Agrawal Welfare Foundation, Rajasthan Mandal, Agroha Vikas Trust, Union MF, UTI MF, Arthamitra Gurukulam, Vidyalankar Institute of Technology etc for expert lecture on "Smart Investing", "Life is A Celebration", "Financial Freedom", "The Digital IFA" etc. He was ranked 8th Merit at All India level NMAT which got him selected for MBA programme at NMIMS, Mumbai. He did his MBA with Capital Markets as his specialisation. Soft Skills has become an inevitable part of every selection process and teaching learning process these days. The students from small towns and tier II cities, in spite of being talented and well equipped with technical skills, are seen struggling in the selection process. This is because of their lack of exposure to these soft skills. Mr. Bajaj has a zeal for training candidates to develop these skills and has been imparting the same on since last two years. This zeal and passion inspired him to set up his own firm called “Knowledge Circle” which aims to train candidates for soft skills. Till date, he has trained more than 5000 participants from over 220 organizations across various fields of soft skills. He has been associated with MSBTE (Maharashtra State Board of Technical Education) to conduct Soft skills training workshop for the faculties of Polytechnic Colleges in Entire Maharashtra (Mumbai Region, Pune Region, Aurangabad Region and Nagpur Region) since last 8 years. He has also been associated with ICAI (Institute of Chartered Accountants of India) for training CA Students on various topics related to Communications skills, Group Discussions etc. He was invited by Fr. Agnel Polytechnic College, Vashi for a motivational workshop for faculties. He was also invited by Vivekanad Polytechnic College for "Communication Skills and Email Etiquette" training for non-teaching staff. Apart from these, he has conducted “Capacity Building Soft Skills workshop for Faculties” at ITI Gunj, ITI Pusad, ITI Digras and ITI Umarkhed. This was the first ever soft skills workshop for faculties in the history of ITI’s in Vidarbha. He was also invited by Shivaji Education Society to conduct similar Soft skills workshops for the faculties and office staff of Shivaji Junior College Pusad, Shivaji High School Pusad, Shivaji Vidyalaya Belora and Shivaji Vidyalaya Bhojla. He has conducted training workshop on “Effective Presentation Skills” for the relationship managers of HDFC Mutual Fund, Andheri Branch, Mumbai. He has also been invited at College of Management and Computer Science, Yavatmal, College of Dairy Technology, Warud, B N College of Engineering, Pusad, B D College of Engineering, Wardha, College of Engineering and Technology, Akola, Dr.N.P.Hirani Institute of Polytechnic, Pusad etc. for the Guest lecture on “Developing Interview Skills”.

25 thoughts on “Time- Time ki Baat hai : Part – I

    1. THank you So much Sir !!

      Yes, even I have observed such situations in so many families. Thus, thought of putting it this way.

      Thanks again for your visit and valuable comments. We look forward to more in future.

    1. Thank You So much Bhai ji !!

      You wont believe but I was really waiting for your comments. I was just thinking that as the article is posted one hour back, it might take some time for you to read it.

      But you read it and gave your valuable comments really fast.

      Thanks again for your visit and feedback. Looking forward to more in future.

  1. Bhai G…. dekho is baar to aapke article ki tag line par hi chal pada Time Time Ki Baat Hai…

    Last Time main har baar kaphi der k baad padh pata tha par is baar jaldi padh liya… or bhai g mere comment to kya h bus aap hamara marg darshan kar rahe ho so uske liye aapko bahot bahot dhanywaad h Bhai g…

    we all are looking forward to get more from you….

    1. Thank you So much for your valuable comments.

      I am always committed to spread awareness and practical knowledge about financial products. And I get truly inspired with such compliments from all your readers.

      Thanks again for your visit and feedback. Looking forward to more in future.

  2. Nice article.

    I will take a print of this article for my father :-).
    I use excel sheet to explain this to my friends. Unfortunatly they don’t believe in that as they think agents are more knowledgable in that field and I am just doing some random math.
    I will forward this to all my friends as this time its coming right from the Investment Guru.

    Waiting for next part.

    1. Thank u so much Sir. Thats indeed a great compliment for me.

      I do agree that people have faith in agents more than others. But then agents also need to carry this faith with responsibility, which doesn’t happen in most cases.

      I hope it will be helpful to your friends too when you forward it to them.

      The Next part will follow soon 🙂

      Thanks again for your visit and valuable comments. They act as a great motivator.

  3. I totally agree with Vikram.

    Reminds me of the numerous times I have had this discussion with my father and I alwez lost ……Lolzzz

    Now I would be able to put forward my side with much more strength and conviction, thanks to you !!

    Please do keep writing. Waiting for the next part 🙂

    1. Thanks for your comments Karan.

      I hope this article just helps you to resolve the discussion and not turn it into a heated one. 🙂

      Thanks again for your visit and feedback. And as said earlier, the next part will follow soon.

  4. Hi Bro,
    I jsut took a one year mediclaim plan for mom and dad two days back.
    I find it appealing as well.
    Great blog.

    1. Thats really Good bro !! Am sure you referred the article on Health Insurance before taking the plan.

      Thank you so much for the visit and feedback.

      Looking forward to more in future.

  5. Sir, nice article. this is how the discussions happens in most of our families. There is a clear no if u opt for a term insurance. This would certainly be helpful 🙂

    1. Thanks for the compliments Lalit Ji.

      I was really awaiting your comments. Glad to know that this article would prove to be helpful. Would try and keep writing more in future.

      Thanks again for your visit and feedback. Looking forward to more in future.

  6. This is the perfect blog for anyone who wants to know about this topic. You know so much its almost hard to argue with you (not that I really would want…HaHa). You definitely put a new spin on a subject thats been written about for years. Great stuff, just great!

    1. Thank you so much for your compliments Sir !!

      The Secret behind writing such articles is the motivation coming from all you readers. So equal credit goes to you all as well.

      Thanks for your visit and feedback. Look forward to more in future.

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