Comparison between Bank Rate of Interest and LIC Jeevan Akshay-VI...! For more details Contact LIC DIRECT:9008010161

1. Investment Risks in
personal finance
&
LIC’s Jeevan Akshay
the logical solution
for uncertain times
An analysis by LIC
of India Mumbai
Division III

2. The need for management of
finances
▶ Due to modern lifestyles, unlike in the past where people were
mainly agrarian and enjoyed the security of a joint family or
community system, today, people have to work, earn and
also take care of their parents and children. The focus is
more in the nuclear family and its needs.
▶ As a person passes through various stages in life the manner
in which money is created, conserved and used undergoes
change and these phases have to be understood and
managed for a comfortable life within the society.
▶ This has given rise to a market for a variety of financial
products where is risk is mitigated, transferred and managed
to ensure continuous availability of financial resources
throughout the lifetime of the individual

3. Stages in life – Life Insurance
Products and other savings
Young working: Age 25 to
40
Savings type – Term,
Endowment, Money Back,
Children's plans, recurring
deposits, SIPs, PO-RD etc.
Less money – has to pay premiums and generate savings from
salary or business profits after meeting living expenses

4. Young Age

5. Stages in life – Life Insurance
Products and other savings
Middle age working: Age 40 to 55
Savings type – Endowment, Money
back, Deferred Annuity, Pension Plans
and Immediate Annuity, Health Plan,
recurring deposits, fixed deposits,
stock market, real estate.
More income – can afford to save from income or profits but also has
savings spread out in various investments. Has to take care of health
and also provide for unexpected health costs. Can now afford to think
of retirement corpus and has to focus savings towards creating this
corpus

6. Middle Age

7. Stages in life – Life Insurance
Products and other savings
Nearing retirement or retired:
Age 55 and above
Savings type – Pension
products, Bank Deposits, Health
Insurance, Care Home
Definitely require pension and health cover whereas there will be
no income. So the planning should start early. Cost of living as
well as cost of health care will shoot up. It is said that a person
will spend almost 75% of the total amount he spends on health
care in the last month of his life

8. After Retirement

9. What options are available
with you?
▶ 3 markets for Agents
▶ Insurance Market
▶ Savings/Investment Market
▶ Health Market
▶ But LIC agents function only in the Insurance Market
▶ Our clients save or pay money into the Savings Market and Health Market
▶ The additional income that Agents could have earned is taken by other
intermediaries
▶ When we have the right product and the backing of the strongest brand in
India what prevents Agents from earning higher?

10. The Great Indian
Savings Bazaar

11. Huge Savings & Investment
Market of India
Amount Spent 68.28%
Amount saved GDS 31.72%

12. Gross Domestic Savings
Other savings 52.17%
Financial savings 47.83%

13. Savings in LIC and its
components
Non
Single
FYP 8.08%
Renewal 59.97%
Single 5.11%
Pension
Group 26.82%

14. Household
Financial Savings
Bank 36.36%
Compan
y
Deposits
/PO/PF 9.09%
Mutual
Funds/
Equity/
ETF 42.44%
LIC 12.10%

15. Typical
investment
patterns in
India
Asset class Name of savings
Non Single
Insurances /
Deferred
annuities
Life Insurance (Non Single)
Life Insurance Single premium
GSLI
Postal Life Insurance
Pension
Funds
Employer provided Group Superannuation
Single premium Annuity (Akshay)
Deposits
Post Office Recurring Deposits
Bank Recurring Deposits
Post Office Term deposits
Bank Fixed Deposits
Other NBFC recurring Deposits
Other NBFC Fixed Deposits
Direct investment in bonds
Employer/Employee PF Accumulations
Public Provident Funds
Gratuity (estimated)
Equity and
mutual funds
Direct investment in shares
Mutual funds (SIP + Lump Sum)
Exchange traded (gold) funds
Exchange traded real (estate) funds
Immovable
and other
assets
Precious metals/jewellry
Real estate (land) if purchased by you
Real estate (Land and Building) if purchased by you
Real estate Apartment/flats if purchased by you

16. Tenors Existing for Public
w.e.f. 27.04.2016
Revised For Public
w.e.f. 01.09.2016
Existing for Senior
Citizens w.e.f.
27.04.2016
Revised for Senior
Citizens w.e.f.
01.09.2016
7 days to 45 days 5.5 5.5 5.75 5.75
46 days to 179
days
6.5 6.5 6.75 6.75
180 days to 210
days
6.75 6.75 7 7
211 days to less
than 1 year
7 7 7.25 7.25
1 year to 455 days 7.25 7.15 7.5 7.4
456 days to less
than 2 years
7.5 7.25 7.75 7.5
2 years to less
than 3 years
7.5 7.25 7.75 7.5
3 years to less
than 5 years
7 7 7.25 7.25
5 years and up to
10 years
7 7 7.25 7.25
State Bank of India – Term Deposit Rates

17. Historic Bank FD Interest
Rates

18. Post
Office
rates
slashed

19. RBI cuts repo rate by
25 basis points, echoes
Govt’s growth roadmap
AMID easing food inflation and projections of a global
slowdown, the Reserve Bank of India (RBI) cut its key policy
rate — the repo rate — by 25 basis points to 6.25 per cent,
fuelling hopes of cheaper loans for home buyers and
corporates. This takes the rate to its lowest since January
2011.
The unanimous decision to reduce rates was taken by the new
six­member Monetary Policy Committee (MPC) under a
framework agreement signed with the government, marking a
decisive shift in the approach to interest­rate setting in India.
Earlier, the RBI governor was technically the sole arbiter of the
monetary policy
The Indian Express 5th
October 2016

20. Longevity risk
The risk of outliving your
savings.
The living and health
expenses keep going up.
A plan like LIC’s Jeevan Akshay is one which will set your
worries to rest.

21. Reinvestment risk
▶ Suppose interest rates keep going down…
▶ The risk of loss from reinvesting principal at a
lower interest rate.
▶ In case you reinvest the monthly interest
received at lower rates too reinvestment risk
will affect your overall savings.
▶ Risk of spending from the capital amount and
capital as well as interest depleting
▶ Once locked in at a guaranteed rate LIC’s annuity plan Jeevan
Akshay will last you a lifetime.

22. Concentration risk
▶ The risk of loss because
your money is
concentrated in a single
investment or single
category of assets.
▶ One part of your savings has to be in a
guaranteed scheme which will last you’re a
lifetime like LIC’s Jeevan Akshay.

23. Credit risk
▶ The risk that the company that
accepted the deposit can
neither pay interest nor repay
the capital.
▶ Example: Bonds having lower
rating, or NBFCs which are not
strong
▶ Under such circumstances guaranteed
annuities like Jeevan Akshay from trustworthy
companies like LIC provide the only regular
source of income.

24. Inflation/Deflation risk
▶ The risk of a loss in your purchasing power
because the value of your investments
does not keep up with inflation.
▶ At the same time when Inflation goes
down interest rates too go down and you
will have reinvestment risk.
▶ Under such circumstances guaranteed annuities
like Jeevan Akshay provide the only regular source
of income.

25. Horizon risk
▶ The risk that your investment
horizon may be shortened
because of an unforeseen
event, for example, the loss of
your job, disability or illness.
Life Insurance is the
instrument meant for such
contingencies.
▶ Under such circumstances buying a guaranteed
annuity like Jeevan Akshay provides the only
regular source of income because you can’t
encash and spend all of it.

26. Call Risk
▶ The company may redeem bonds
prematurely because they can afford
to borrow at lower rates. Then you as
the investor will have reinvestment
risk that you will end up investing in
lower returns.
▶ LIC though it sometimes offers surrender
when the interest rates go down, it is
entirely upon the customer to decide
whether to take up the offer or not.
(Example Jeevan Dhara) Those you did
not surrender are very happy today.

27. Market Risk
▶ Remember the year 2008 and global
meltdown. Almost all investments
started giving very low returns.
▶ But LIC with its huge investments made
in he past had a large portion of life fund
invested in higher yielding securities and
was successfully able to withstand the
storm.
▶ LIC’s Jeevan Akshay will definitely keep its promises
of the guaranteed rates it offers now so that market
risk can be overcome.

28. Social/Political / legislative Risk
▶ Risk associated with the possibility of
unfavorable government action or social
changes resulting in a loss of value is called
social or political risk. Because the
Government has the power to change laws
affecting securities, any ruling that results in
adverse consequences is also known as
legislative risk.
▶ LIC due to its size is one of the few
companies that invests in 30 year bonds of
the Government. Government requires
companies like LIC to fund its on functioning.
▶ That’s the reason why LIC is able to offer a
much higher return on Jeevan Akshay than its
competitors.

29. Liquidity risk
▶ The risk of being unable to sell your investment at a
fair price and get your money out when you want to.
To sell the investment, you may need to accept a
lower price.
▶ Example is real estate. Try a distress sale and find
out for yourself how quickly the potential buyers hold
out for you to lower the prices.
▶ In real estate there is appreciation (unpredictable and
depends on external factors) but rental incomes are
hardly enough to pay off housing loan installments in
most cases and increase in rent is also not possible
to the extent of inflation.
▶ Though Jeevan Akshay does not have liquidity, it has a guarantee
that lasts you a life time, so that your capital remains intact along
with periodic installments.

30. Risk / Returns and Guarantees
Type of Savings Name of savings
Longevity
Risk
Reinvest
ment
Risk
Concent
ration
Risk
Credit
Risk
Inflation
Risk
Horizon
Risk Call Risk
Market
Risk
Political
Risk
Liquidity
Risk Returns
Banks/PO
Bank/Post Office
Reccuring/Term
deposits Yes Yes No No Yes Yes No Yes Lower No
Moderate /
Guaranteed
Other NBFC
Reccuring/Term
Deposits Yes Yes Yes Yes Yes Yes Yes Yes Yes Partial Higher
Public Sector
Bonds Yes Yes No No Yes Yes No Yes Lower Partial Moderate
Private Sector
Bonds Yes Yes Yes Yes Yes Yes Yes Yes Yes Partial Higher
Public Provident
Funds Yes Yes No No Yes Yes No Yes Lower Partial
Moderate /
Guaranteed
Stock Market
Direct investment
in shares Yes Yes Yes No Partial Yes No Yes Yes Partial High/Low
Mutual funds (SIP
+ Lump Sum) Yes Yes Yes No Partial Yes No Yes Yes No High/Low
Exchange traded
(gold) funds Yes Yes Yes No Partial Yes No Yes Yes No
Moderate /
Higher
Exchange traded
real (estate) funds Yes Yes Yes No Partial Yes No Yes Yes No
Moderate /
Higher
Real estate &
precious metals
Precious metals/
jwellery Yes Yes Yes Yes Partial Yes Yes Yes Yes Yes Moderate
Real estate (land) No Yes Yes Yes Yes Yes Yes Yes Yes Yes
High /
Moderate
Real estate (Land
and Building) No Yes Yes Yes Partial Yes Yes Yes Yes Yes
High /
Moderate
Real estate
Apartment/flats No Yes Yes Yes Partial Yes Yes Yes Yes Yes
High /
Moderate
Pension Jeevan AKshay No No No No Yes No No No Lower Yes
Moderate /
Guaranteed

31. So where is the road block?
▶ It is the fear to ask money from the safe (savings of the customer)
▶ We are comfortable to ask money from the income of the customer but not
from the savings
▶ We think the customer knows where to save and that the returns elsewhere
are higher. This is not so. Jeevan Akshay gives a guaranteed return which is
as good as a bank return but for a lifetime.
▶ Bank rates are going to go down soon whereas Jeevan Akshay will remain
guaranteed
▶ Our customers will not know about Jeevan Akshay unless we tell them
▶ We need to now convince the customer why our Jeevan Akhay is good at this
moment in time.
▶ For this we need to know what are the different types of Investment Risks.

32. Our products are created to
offer the same rewards for
same efforts.
▶ Minimum Sum Assured in non-single
products is Rs.100000/- approximate
premium Rs.6500/- and approximate
commission Rs.2000/-. This money
comes out of pocket (annual income) of
customer.
▶ Minimum Premium in single premium
product like Jeevan Akshay is
Rs.100000/- and commission is
Rs.2000/-. This money comes out of
safe (savings) of customer.
▶ Average sum assured of our division is
Rs.300000/- and commission is
Rs.6000/-
▶ Average premium size of Jeevan Akshay
is Rs.300000/- and commission is
Rs.6000/-

33. How should an Agent
approach for Jeevan Akshay
▶ Ask ten to twenty times of the premium
you ask under non-single plans.
▶ If you habitually sell policies where the
annual premium is Rs.50000/- ask for a
premium of Rs.1000000/- to the same
customer and you have to convince him
that this savings is better than any other
savings.
▶ All customers keep money in different
savings. Savings in Pension plan will be
an additional avenue. We are not asking
that the customer give us all his savings.
10% to 20% of his total savings in Jeevan
Akshay should be judicious.

34. Conclusion
▶ LIC’s Jeevan Akshay plan opens a
wide avenue for us to enter the
savings market
▶ It gives the Customer Guaranteed
Returns so that there is no risk of
losing capital as well as interest in the
return of corpus option.
▶ For customers who are above 80 years
the returns are even higher.
▶ The customers will thank you for the
advice when the rest of the interest
rates go down.

35. Questions?