Nikhil Bhatt's Blog

Why not to invest in endowment plans.

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Nikhil Bhatt
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3 min read

I recently got fooled by one of an policy agent, he tried selling me the policy which have a very expensive premium and very low cover. he started pitching me like Your money will get doubled in those many years. it was an endowment plan the min sum assured was 10 lac. and yearly premium was 35000 for 27 years. at the time of maturity my money will be 10Lac + bonus (may be around 12 lac).

  • Total Invested amount = 34800 * 27 = 9,39,600
  • Money at the time of maturity = 22,00,000
  • Using this Calculator annualized rate of return is around 3.20%

To calculate the interest to double the money you can use the simple formula.

  • Annual Interest = 72 / no. of years
  • Use to rule of 72 calculator.
  • In my case(if I assume my money is getting doubled in 27 years) it is 72/27 = 2.67% interest rate
  • Inflation is around 5-6%. so my money value is actually getting deprecated.

All other advantages he tried to tell me are:-

  1. You will get relief in taxes.
  2. You are getting accidental assurance and life cover in single policy.

There are other LIC policies which are even worst than this. so definitely this policy is not for me. So How you can manage your money and start investing? I will try to answer this question in detail according to my research and experience.

Where you should invest and manage your money?

Emergency Fund

Before investing anywhere make and emergency fund for yourself. this emergency fund will help you to be out of crisis if you need money in case of any emergency.

Emergency fund should be minimum 6*(your monthly expenses). this can be divided into 10-40-50 parts.

  • 10 % in cash.
  • 40% in savings account.
  • 50% in FD. (so that you can withdraw anytime you wanted)

Term Insurance

If you are earning member of your family than you should have a term insurance plan.

  • Low premium amount.
  • High cover.
  • You can get risk cover of 1cr at around 1500/month.
  • If you are in your 20s than premium amount will be usually lower.

Health Insurance

You should have health insurance also which will help you to recover from your hospital bills in case you or your family member gets admitted to hospital.

PPF Account

Generally this is best and safest option to invest I found so far.

  • Maximum investment upto 1,50,000 in a year.
  • Minimum 500
  • You can send amount to this account only 12 times in a year.
  • Maturity after 15 years. (You can increase this every 5 years if you want)
  • Tax benefit upto 1,50,000 (section 80c)

VPF

VPF stands for Voluntary Provident Fund. if you want to invest more in your EPF account (opened by your company) than you can do so. you can declare a amount and ask your finance manager to invest that much amount in EPF account on behalf of yours.

NPS Account

This is the National pension scheme similar to PPF but somewhat different. here you can decide how your money will be invested in equity and debt.

  • No Maximum limit.
  • Minimum 1000.
  • You can transfer money any no. of times.
  • You will get money only after your retirement. (you can't take all of money at once)
  • Tax benefit upto (1,50,000 + 50,000)

Stocks and Mutual Funds.

If you want to invest more than you can invest in stocks and mutual funds. but before going into that you should research about this.