INVESTORS KEEP FAITH IN LIC'S JEEVAN AASTHA

Mumbai: Despite the turmoil in the financial markets, Life Insurance Corporation’s Jeevan Aastha policy is on course to break the record for premia collection by a scheme in a single month. The policy has been lapped up by celebrities and middle-class investors alike during the 45-day window it was open for sale. The policy, which closed on Wednesday, is expected to collect over Rs 8,000 crore. But some insiders said the collection could be higher. “The exact amount will take some time to collate. Some large proposers have deposited only a token amount as they did not want to lock their funds in case they did not clear the medical underwriting,” said an official. Although the corporation had said it was targeting Rs 25,000 crore, this was seen as a marketing gimmick and not a real target. Sources said the applicants include a host of big-ticket names. A sportsperson is understood to have put in Rs 35 crore, while a leading film actor has invested Rs 8 crore and a little-known business family has invested Rs 50 crore. In addition, thousands of applications have been received for Rs 1-crore policies, said sources. For high net worth individuals, the tax free earnings were a major attraction while for the middle class, there was the additional benefit of tax savings under section 80 CCC. In the past, many of LIC’s guaranteed high-return schemes have seen runaway sales towards their closing date. These include Bima Nivesh and Jeevan Shree. But there are several differences between Jeevan Aastha and other high-return schemes. Aastha is largely an urban phenomenon, with money coming in from large cities. Unlike other products, where a sudden turn in interest rates tipped money into the schemes, Jeevan Aastha was a combination of clever structuring, planning and timing. Understanding investors’ preference for guaranteed returns, LIC structured a product by first buying huge quantities of bonds when triple A companies were borrowing at 11-12%. The corporation then obtained permission from the industry regulator IRDA for a guaranteed return product where subscriptions would be open for only 45 days. The insurer delayed the launch of the scheme to time it closer to the third quarter, as rates were seen to be coming down. The sheer distribution strength of LIC also played a big role in pushing the product. The policy has helped to boost LIC’s flagging market share and has enabled several offices in metro centres to achieve their premium targets for the whole year in January itself. Despite the success, the scheme has its limitations. Jeevan Aastha is more of a bond and less of an insurance policy. Although the sum insured is five times the premium in the first year, the cover amount declines to two times from the second year. Smaller investors, who were not all that savvy in reading the fine print, were sold the policy with a promise of 10% return. But the actual returns are likely to be much lesser.

Source: The Economic Times