Bima Nivesh: Another chip-of-the-block?

K. Nitya Kalyani

The idea of introducing Bima Nivesh, say LIC officials, is to add to the basket of products of the corporation, so that any investor who wants this profile in an instrument, will choose to put his money in LIC rather than take it to someone else.

They are also aiming at their own policy-holders who have moneybacks, for instance, or other term assurances where they get the maturity value on those policies and are looking for a place to park it. This seems like a very niche requirement. Nonetheless, having decided to have a product for this kind of customer, the LIC could have made it more user-friendly.

IF YOU have money and do not know how to invest it, then Life Insurance Corporation of India has an offering for you -- the Bima Nivesh policy.

But the scheme is baffling for the lay investor. It is aimed at someone who has just retired or received some sort of terminal benefit and is unsure about long-term investment.

Hence, Bima Nivesh is a single-premium policy. But the blocking off option should ideally be for about a year. But Bima Nivesh comes with two medium-term options -- five or 10 years.

At the end of this period, you get the sum assured (target amount) as well as compound guaranteed and loyalty additions, with a life insurance policy.

In a way it is like a cumulative deposit. The numbers are very simple to begin with. For a sum assured (maturity value, this is your target amount) of Rs 1,000, you pay Rs 964 as a one-time premium if you want a five-year Bima Nivesh (Rs 902 for a ten year-term).

The return on that works out to be disappointing in itself. For instance, if you take a 10 per cent compounded rate of interest, your maturity value on Rs 964 in five years will be Rs 1,551. And those rates are available for bluechip company fixed deposits today (in fact, three-year deposits fetch 12 per cent in the cumulative option).

Of course, you can use the premium paid towards your Section 88 tax rebate and that pushes up the rate of return to a certain extent. Also, the risk on the investment is zero.

There is also the guaranteed addition and the loyalty addition, but LIC is not yet placing a number on the latter as this depends on its experience with the particular policy. As a recently introduced policy, the first set has not yet matured and the numbers are yet unknown. Guaranteed additions are given at the compound rate of 85 per cent during the first five years and 90 per cent thereafter. This does boost up the return.

The life cover is included. This is usually the best part of any policy but in this, LIC has thrown a true googly that is even more baffling than the return calculation and takes away any attraction it may offer.

Take a look at this. All is well if you buy Bima Nivesh and take your maturity, the rates being what they are. In the event of the person's death during the term of the scheme, then the maturity should be timed well.

If you die within the first year, then your nominee gets only the premium you paid. No returns on that. Worse still if you die in the first six months, only 95 per cent of the premium will reach your nominee!

Other features of the policy are that you can take it if you are 35-70 years, provided your maximum age at maturity is 75.

LIC does not give loans that are not available under this policy but you can assign the policy to other financial institutions for a loan.

On surrender of the policy, after it has run for at least one year, 90 per cent of the premium paid will be allowed as guaranteed surrender value, plus cash value of the accrued guaranteed additions will also be given.

Special surrender value will be paid under this plan after it has run at least one year.

The alternative investments to this, if you need to block money for 5-10 years and are not looking for returns, are apparent.

The PPF account still gives you a compounded 11 per cent though the investment window is longer. But there is the loan facility. The Section 88 rebate is available here too, and the investment is as simple as starting an account and paying in subscriptions rather than the more cumbersome application-certificate formalities. There is a limit of Rs 60,000 a year and this is not a constraint in Bima Nivesh.

There is the Kisan Vikas Patra or the National Savings Certificate that give similar returns and the terms are just a little over five years.

Then there is the Rahat Patra or the RBI Relief Bonds which give you 9 per cent tax-free return that translates into a pre-tax return equivalent of just over 13.5 per cent return if you are in the top tax bracket. This scores one over the other instruments since it is not a cumulative option but one with periodical interest payment.

RBI Bonds pay out interest twice a year -- June and December -- and you could find yourself a separate stream of income if you have a reinvestment plan for this money.

The risk factor in all these options are the same as in Bima Nivesh -- zero.

A similar investment with a different risk profile is company deposits -- but tread with caution and choose your company well.

Once the choice of the company is taken care of, then the risk profile should start matching that of the government guaranteed instruments. Go for the highest rated instruments alone; manufacturing companies seem to be a better bet than finance companies, and their rates are good too.

What none of these gives, but the Bima Nivesh plan does is the life insurance component.

If you want to use that, check out any policy that is a bare bones life assurance policy -- such as Bima Kiran, for instance -- and add its price. The package could be a better option for you.

The idea of introducing Bima Nivesh, say LIC officials, is to add to the basket of products of the corporation, so that any investor who wants this profile in an instrument, will choose to put his money in LIC rather than take it to someone else. They are also aiming at their own policy-holders who have moneybacks, for instance, or other term assurances where they get the maturity value on those policies and are looking for a place to park it.

This seems like a very niche requirement. Nonetheless, having decided to have a product for this kind of customer, the LIC could have made it more user-friendly. The stated purpose of this product does not quite seem to be served and one wonders what utility Bima Nivesh can offer with all its drawbacks.