How Highest NAV Guarantee Fund works (LIC Wealth Plus)

LIC being the single-most dominant player in the financial sector of India; as it generates 72% of the total insurance revenue and major stakeholder in most of the PSUs like COAL INDIA; manage to attract the maximum number of savers/investors in India. And so most of its plans are in the limelight, attract heavy public interest, and generate huge resources for the company. Also because most of the investor community in India have blind faith on LIC, be it any life insurance policy, term plan or Highest NAV Guarantee fund and start lapping up any offer from them, it is of utmost importance to try and understand the product, and its implications on the investor’s money.

Today, let us see two of LIC’s comparatively new offerings with an attractive tag line of “Highest NAV Guarantee Plans” by the name LIC Wealth Plus Plan and LIC Samridhi Plus Plan

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How LIC Wealth Plus Plan Works

LIC Wealth Plus Review – Under this plan an investor is required to pay premium only for 3 years and the total policy duration is 10 years whereas in LIC Samridhi Plus, policyholder will be required to pay premium for 5 years during the total policy duration of 10 years. In case of Wealth Plus, LIC gives guarantee to its policyholders that they will be getting fund value which will be highest NAV during the first 7 years of the policy or at the time of maturity whereas in case of LIC Samridhi Plus, LIC gives guarantee of the highest NAV during the first 100 months of the policy (roughly 8 years) or at the time of maturity. You can get LIC Wealth Plus NAV history chart from this think link http://www.licindia.in/plan_history.htm . LIC Wealth Plus Current NAV chart and its highest NAV can also be available from the same link

The very concept of “Highest NAV” is such that it creates false sense of huge profits in the minds of policyholders. A layman gets an idea that with this investment, he will be secured of any market ups and downs as the company is giving “guarantee” on the highest return, but that is precisely the point on which LIC and its agents play on the mindset of average Indian investor.

Under these Guaranteed NAV plans, fund manager has the discretion to invest either fully in equities or in debt. So it will not be like the fund will be investing in equities all the time and thus managing to give upside returns like the Sensex. Fund manager cannot afford to be in 100% equity at all the time under such funds because of the word “guarantee”

How Highest NAV Guarantee Fund Work – What Insurance Agents would Tell You

Lets put this through a hypothetical situation where both of the funds started with NAV of Rs 10 in 2012. Now in the next 3 years (till 2015), Indian stock markets performed very well and NAV of these funds have reached Rs 20 i.e double the money invested. So this Rs 20 will be locked as highest NAV in the system which LIC is bound to give to the policyholder at the time of maturity and that is 100% returns. Now for next 2 years (till 2017) let’s assume the market will be stable and show only marginal gains and the NAV of this fund moved to Rs 22 (NAV increased by Rs 2 because the fund had some debt portion in it) . Now this NAV of Rs 22 will be locked which will be provided to the policyholder at maturity. But suddenly markets unfortunately see a huge crash as was in 2008 and NAV of this fund falls down to 11.50 during the last 2 years of the policy. So during the maturity of the policy at 2019, NAV was somewhere around Rs 11. But because of “guarantee” given by LIC, redemption will be done at Rs 22 only as the highest NAV recorded during the policy tenure. So this loss of Rs 11.5 per unit (highest NAV 22 – actual NAV at the time of maturity being 11.5) will be borne by the company. Now this figure of Rs 11 per unit  looks very small but in actual life, LIC would have sold crores of such policies and so units to be redeemed at the time of maturity would be in billions and the direct loss to LIC in such a scenario would be 11 billion rupees. I bet, not even LIC can afford such a loss.

To avoid such a scenario, LIC has made it clear from the very onset that fund manager has the discretion to invest in either equity or debt from 0% to 100%. In actual life too, the moment NAV crosses a particular threshold, fund manager will automatically switch from equity to debt to protect the gains so as to pay out the guarantee. With such a scenario, let’s see the performance of these funds since its inception by following this link https://www.licindia.in/plannav/plan_navs_history_new.html

In this link at official site of LIC, it clearly shows that Wealth Plus plan’s NAV which was launched in Feb 2010 at Rs 10 is currently standing at Rs 9.58 on May 2012 (In a time span of roughly 2 years) and Samridhi Plus plan’s NAV which was launched in March 2011 at Rs 10 is currently standing at Rs 10.40 with the highest NAV recorded in between at Rs 10.59.

How Highest NAV Guaranteed Plan Works – Second Review

Let’s assume the NAV of the fund on Day 1 is Rs 10. The fund manager of the guaranteed NAV plan invest 100% in equity and market give 50% return in the next two years and the NAV of the fund moves to Rs 15. Now assuming the policy term is for 7 years, the insurance company would invest in such a way in future that it is able to give its investors a minimum NAV of Rs 15 at the end of tenure i.e 7 years. So they would shift some x amount from equity which has become from Rs 10 to Rs 15 now to debt instruments so as to make sure that x amount becomes Rs 15 at the end of maturity considering a debt return of 7-8%. Now in this case, after I have made calculations Rs 10.5 would become Rs 15 at the end of the policy tenure (after 5 years) considering 8% return from debt instruments. So that x would be Rs 10.5 in this case. The fund manager would invest Rs 10.5 in debt and the remaining Rs 4.5 would remain invested in equities to take the advantage of further upside in the equity markets.

Now the process would go on. Now Rs 10.5 is already invested in debt by the fund manager to make sure it becomes Rs 15 at the end of the tenure. Now if this remaining Rs 4.5 becomes Rs 6 after investing inequities, he would lock this Rs 1.5 of profits by again investing in such a way in debt that it becomes Rs 6 at the end of the tenure.

You must read it properly: Its “Highest NAV Guaranteed” not Highest Return Guaranteed”  and you are advised not to link it completely with equity markets that if Sensex would give 200% returns in the next 7 years and they would also get this highest return. You would get highest NAV delivered by scheme that can be only 40-70% returns in 7 years sometimes, not highest returns delivered by Sensex during tenure of the policy.

 Important Notes:

  • Generally, you should expect a return of around 8-10% from these guaranteed NAV plans because after making initial gains from equities, it becomes more of a debt fund and the high hidden charges like premium allocation charges and fund management charges of this fund takes away return from the hands of the investor
  • Some of the guaranteed NAV plans have given less returns as compared to ULIP plans even
  • Another important thing to note over here is that you will get the highest NAV only if you survive the term of the entire policy period. In case of death of the policy holder, the nominee would get the existing fund value which may be less than the amount you initially invested
  • Some of offerings from other insurance companies in India are ICICI Prudential Pinnacle Super Plan, Bajaj Allianz Max Gain plan, SBI Life Smart ULIP, Reliance Highest NAV Guaranteed Plan

Hope this will clear any doubt which is there as to these “highest NAV guarantee” plans. They are not meant to provide the highest return of the market of the said period. It will provide only the highest NAV of the particular fund during this 10 year period – the fund where fund manager has the authority to move 0% to 100% from equity to debt. Even IRDA has come out strongly against such plans. Only one message/learning for our blog readers for such plans/policies – stay away.

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Comments

  1. Nine Million Dollars says

    Hello Mr Patel

    My quick suggestion would be to surrender it and go with Term plan plus mutual fund combination

  2. chintesh patel says

    I have invested at total of 60000/- in LIC wealth plus since may 2010.
    Now I hold 5400 units, what will be my returns and should i hold back or surrender the policy.
    Please advice

  3. Nagender says

    Dear Sir,

    I have invested in Wealth plus at my age of 30, from April 2010 till 3 yrs for an annual premium of Rs. 60,000. From the launch of the policy, the highest NAV per unit recorded was Rs. 11.05. I don’t expect that the value of NAV would increase in the near future.
    Right now I hold 16591.68 number of units.
    As per policy document, they have given Sum assured value as Rs. 3,00,000.

    Will I get even the Sum assured value as shown by them?
    How much returns I can expect till the maturity of this policy?

    Suggest me if I have to surrender the policy or continue in the same policy?

  4. Prerak Shah says

    Dear Sir ,
    I had invested Rs – 1 lac in LIC wealth plus plan , Now i want to be exit from this plan ,

    could you tell me where should i sell my units and what is a exit process .

  5. Nine Million Dollars says

    Hi GuruRaj

    Good question. You are a looser on both ends. But you may look to surrender policy and invest in mutual funds and buy cheap (very cheap) term insurance plan

  6. gururaj says

    Dear Sir,

    I have invested at total of 60000/- in LIC wealth plus since may 2010.
    Now I hold 5400 units, what will be my returns and should i hold back or surrender the policy.
    Please advice

  7. Nine Million Dollars says

    Hi Ashish
    LIC Wealth Plus is a crap plan. Dont expect much. Just expect to get your principal back or max 10% returns if continue for 5 years

  8. ashish yadv says

    sir,i have invested 1 lac in wealth plus on yearly basis (total 3 lac, from mar 2010 ) what return i can get after policy term end? pls help me with ur advise.

    regards ashish

  9. Nine Million Dollars says

    Hi Jitendar
    Looking at the current market scenario you may get not more than 30% returns on your investments. you may look to redeem or surrender your policy which may lead to some losses

  10. jitender says

    sir, i have invested 2lac in lic wealth plus in 28 feb 2010 ,how much money i will get atfer 8 year if now i surrender my policy my decission is wrong or right?

  11. Nine Million Dollars says

    Hi Roopesh
    You would loose a lot if you withdraw but still it is advisable to surrender LIC wealth Plus and put money in mutual funds and term insurance

  12. Roopesh says

    Sir I have invested Rs60000 in LIC Wealth plus on March31,2010.How much money I will get after 8 years?or shall i withdraw? Please advice me

  13. Nine Million Dollars says

    Hi Jitendra, Yes you can surrender your policy. You can go to LIC policy and ask them about the complete procedure

  14. DIBYENDU GHOSHAL says

    I approached an agent doing post office savings to save mandatory saving to get Income Tax exemption in April 2010. That bloody rascal agent misguided me and advised me to keep money in LIC Wealth plus , with three premium of each amounting to 1.5 lac. In the third premium, one of my bank cheque (50,000/-) bounced back and he again took that money but did not deposit the same to LIC office but kept with him and returned me after 14 months (without any interest). He assured me that I would get return more than three times of my invested principal value. Now in effect, I have invested Rs. 4.0 lakh. I am a teacher and 50 years old and have no family, but I am physically very weak.
    My only fault is that I trusted that cheater agent in KOLKATA doing the job of agent in Indian Statistical Institute Post Office (Kolkata-700108). I can disclose his name as I have no personal obligation with him. I work in Tripura but a man of North Calcutta.
    My term will mature on April 2018 (8 years’ term). My nominee is my unmarried elder brother who is a cerebral patient. So you can understand how wicked and greedy that rascal agent is.
    Kindly advice me what I have to do? I like to get at least some benefit and do not want to suffer any loss. This savings are my only savings. Please answer in a prudent way, not casually. I am a Ph D in Technology, not a layman. But regarding money matter, I am far far less than an illiterate person.
    Kindly ADVICE as I may not drag my service due to poor health.

  15. jitendra singh says

    sir i hav invested 80000 in lic wealth plus on 31.03.2010.now i want to back my money by surrendering the policy,plz advice about procedure.
    plz advice is it possible to withdrawal 50000 back and 30000 is continue for 7 year.

  16. Nine Million Dollars says

    Hi Jitendar
    If the policy delivers 7% returns in the same period, You may get close to 3.75 to 4 Lakhs

  17. Nine Million Dollars says

    Yes Sukanta
    7 year Highest NAV policies are not return friendly for consumers

  18. SUKANTA says

    there is no locking period ,as i know, 7years meaning return of highest Nav between the period, but i have no faith on any unit link policy of lici

  19. Nine Million Dollars says

    Hi Rajasekhar
    In Highest NAV plans, I think you should expect 6.5% annualised returns after 7 years or you can expect your money to become double inside 7 years. You may surrender the policy but you would face a lot of deductions

  20. Nine Million Dollars says

    Hi Sukanta
    Thanks for sharing lovely information with my readers

  21. SUKANTA says

    Dear Investor dont invest in unit link policy of lici, its all cheating, very recent i loss heavey from market plus 181 , after investing 5 years , i gain little , but if i invest in FD at any bank i will earn 4times than lici,

  22. rajasekhar says

    hi
    It is very useful article. My friend invested 3 lac in wealth plus. Now it became about 291000 . How much amount or Units he will get at the time of locking period 7 yrs.
    If he wants to withdraw how can he do it. kindly clarify.

  23. jitender says

    sir i have invest 2lac in wealth plus in feb 2010 how much money i will get after 8 year

  24. Nine Million Dollars says

    Hi Rizwan
    Go with large cap funds from renowned AMC like Reliance ,HDFC and ICICI

  25. Rizwan.H says

    Im 43 years old, planning to invest in MF through SIP, suggest some secured policy and investment period to get benefited.

    Thanks

    Rizwan.H

  26. Nine Million Dollars says

    Hi Manjunath
    Withdrawing money & putting in mutual funds and term insurance may turn out to be the right decision

  27. Nine Million Dollars says

    Hi Manjunath
    I hope you must have understood the whole concept. Thanks for liking the concept

  28. manjunath says

    LIC Wealth Plus is a Dabba Policy, Cheating Policy….. useless policy ……

    Result will be Big Zeeero…… I have invested somuch of amount…… I am planning to withdraw……once compleation of 3 years………. :(

  29. Nine Million Dollars says

    Hi Sujit. You are always requested to check the same with LIC by providing them your policy numbers.

  30. Sujit Kumar Modak says

    Please give me prasent status of my policies ,

    My Policies No–428438803 , 428439000 , 428436913
    Name of my policy- Wealth plus

  31. Nine Million Dollars says

    Dear Singha
    You should not expect a return of more than 5-8% from such products. To know surrender value, kindly call up the concerned customer care with your policy number

  32. ph. K. Singha says

    sir, how much return after 3 year completed, because i paid 5000 rupees quaterly and can i know the surrender value.

  33. Nine Million Dollars says

    Hello Mr. NK Agrawal
    The asset allocation solely depends upon the risk appetite of the individual in question. Thanks for supporting the article

  34. N K Agrawal says

    The article is an eye opener. I have been surfing through different sites all these days. I find it is foolish to get Life Insurance. The only weakness on the basis of which people get cheated is that these life insurance cover risk! What I think, in place of getting invested in Life Insurance completely, people should bifurcate the investment in three parts: 1. Term Insurance(20%), 2. PPF(50%) and 3.SIP(30%) . Bifurcating ratio is my naive calculation. A financial expert could only give a proper distribution.

  35. Nine Million Dollars says

    Hello HK Shah
    Getting 15% from NAV Guaranteed plans looks unrealistic. Maximum you can expect is a return of 6.5-7% in NAV Guaranteed plans. Ideally equity mutual funds can give you 15% returns which they have given in the past
    Nine Million Dollars

  36. H.K.Shah says

    Sir i have invested Rs. 2000=00 per month in wealth plus plan from july-2010 atleast how much amount i will get because all agents are telling that you will get almost 15% return from this after 7 years pl. give me the reply

  37. Dhawal Sharma says

    Dear Veeran,

    First the good news..If your friend stay invested for 7 years (The time period required to be invested in the plan to get HIGHEST NAV benefit), he will surely get decent returns..His returns will be somewhat more than what he would have invested..So no worrys of Big Zero for your friend :-)
    Bad news is that in the coming next 7 years, India is going to have a massive Bull Run and your friend + everybody who has invested in Wealth Plus will miss out big time if they have not invested in Equity MF..These products (Highest NAV Guarantee) are designed in such a way that they will end up giving returns equal to Bank FD and thats all..

    And yes, company will keep on deducting charges in the form of units month on month till maturity..All these details are there in the product details/brouchers at LIC website..

  38. veeran says

    hi
    It is very useful article. My friend invested 3 lac in wealth plus. Now it became about 2.1 lac (or 20010 units) . Moreover, every month they deduct 20 to 22 units as some charges. How much amount or Units he will get at the time of locking period 7 yrs.
    Whether he will get get atleast 25% of amount or only big zero at the end.

    If he wants to withdraw how can he do it. kindly clarify.

    veeran mumbai

  39. amit says

    Respected Sir i am invested rs. Fifty thousand one time premium
    twice. Total invested one lac amount in sep-2010.
    Now what can i do sir. If i cancel the policy how much amount
    I will reciev back

  40. POPO GAA says

    very helpful article Sir. LIC surely will meet its end in near future IF they are continuing their deicieving policy towards financial illiterates. LIC fund manager should immediate realise that everyday is not sunday. they cant fool any longer with such FUNNY & STUPID SCHEMES like ” Invest 2500 Per Year in LIC ULIP and Get 33Lac After 30 Year”. haha..
    Its a direct insult to all indians. they think that general public citizens are sooo n sooooo illiterate(even a bushman are well educated to feed and secure their family). its a daylight looting of hard earn money.

  41. Nine Million Dollars says

    Hi Sankar
    There is a lock in period of 3 years and after the completion of 3 years, you can withdraw partially twice in a policy year subject to a minimum amount of Rs 2000

  42. sankar chattopadhyay says

    what is its locking period?can it possible to take money if need and when.how much.

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