What Ho! Ah! To live with a What Ho on my lips and a Gentleman's Gentleman… {sigh}… Such is life…

HDFC – Investment Plans with "Assured Gifts"

The following email was sent to an internal mailing list at work.

Hi Everyone,

I am posting this on behalf of my friend, "Vikas". Please do contact him in case you are interested in any of the HDFC Standard Insurance and investment plans.

Thanks,

XXXX

---------------------------

Hi Everyone,

Invest in HDFC Standard Life Insurance and get free ASSURED GIFTwith every investment plan.

1. Invest Upto 20,000 get Kodak KB 10 35 mm Camera worth Rs.500/- FREE.
2. Invest from 20,001 to 35,000 and get 5 grams Silver coin FREE.
3. Invest from 35,001 to 50,000 and get 1 gram Gold coin FREE.
4. Invest from 50,001 to 70,000 and get Onida DVD player FREE
5. Invest from 70,001 to 99,000 and get Apple Ipod Shuffle FREE.
6. Invest from 1,00,000 to 1,50,000 and get Washing Machine FREE.
7. Invest from 1,50,001 to 2,00,000 and get 21 Inches T.V. FREE.
8. Above 2,00,000 get a 10 grams Gold Coin FREE.

This offer is valid till 31st Jan'2009. Please call Vikas Sharma on +91 98481 92990 or email at vikass6@hdfcinsurance.in

Thanks,

Vikas Sharma.

An nice example of a Life Insurance Company selling it's policies by offering so called "Assured Gifts".

Lets see if we can understand this better. HDFC will sell you an "Investment Plan", which is another name for an ULIP. Because you bought their ULIP they will give you an "Assured Gift". There are 8 "offers" listed.

Lets look at the first and the last.

First Offer:
Assured Gift worth Rs. 500/- for investments upto Rs. 20,000/-
Immediate Return on Investment (in kind): 2.5%
Fine Print? What about an investment of Rs 5000/-? Is there any investment below the 20K level mentioned?

Last Offer:
Assured Gift of a 10gm Gold Coin for investments above Rs. 200,000/-
Value of Gold Coin: Rs. 1,620/- (appox per gram, taken from Kotak Bank's web Site)
Value of Gift: Rs. 16,200/-
Immediate Return on Investment (in kind): 8.1%
(Check International & Indian Bullion Rates)

Cool eh? Great What? You get money back immediately! And all for buying an "Investment Plan" from HDFC!

But where did this money come from? Is a "Return On Investment"?

The short answer is no! It is your own money. Returned to you instead of being invested. Essentially the Broker / Insurance Company is returning a part of the fees they would otherwise charge you for the "Investment Plan".

Ask yourself this - How come these guys are able to return 8% of total value invested? How much of my money are they actually pocketing such that they can give me back a cool 8%? What is the actual cost of this so called "Investment Plan"?

Note that this 8% is not invested in the traditional sense. The Gold coin will of course appreciate in value but not as much as Equity. So if you had invested the same amount of money, namely Rs. 200,000/-, in Mutual Funds, all you would have paid is a 2.25% fee if you are too lazy to fill out the form. If you are not lazy and want your money to work as hard as you did to earn it, then you fill out your own forms and invest the entire 2 Lacs and enjoy a nice return that no ULIP can match.

Term Insurance Vs ULIP – A Comparison

The folks at gconnect.in have an interesting article on Term Insurance vs ULIPs. Well written and cohesive unlike many other such articles put out by brokerage houses. Do read the full article on the gconnect.in web site.

The Financial Pundits

I read the financial press on a regular basis. Mostly on the web but a couple of print magazines as well as the financial newspapers if I find the time to curl up with one. Needless to say I find myself skimming through the magazines because they don't seem to have anything new to say. Once in a while a new columnist comes up with a new way of looking at things or a brand new idea. But this is rare indeed.

Does this mean that our Financial Gurus are not really Gurus at all but regular Joes like the rest of us? Maybe. I will leave it to the reader to decide.

This post was prompted by a newsletter from Franklin Templeton India. They send out a regular newsletter called "Franklin Templeton - Perspective". In the latest edition dated August 15, 2008, I found the following:

President's Letter

"We expect markets to remain volatile over the near term, but they should move in tandem with the medium to long term fundamentals, which remain strong. Over the years, we have seen situations like these, and believe that they provide a great opportunity to long term investors..." Read More

Okay. So what did this gentleman say? They, that is Franklin Templeton India, expect the markets to remain volatile. Good. So far so good. The markets will remain volatile.I know that. Everybody knows that. If you stop to think about it, the markets are always volatile. When they are rising steadily, we just don't use the term Volatile. But the market is volatile by nature.

Lets move on to the second thing this gentleman says. He goes on to state his prediction of market movement. Great! To be expected. Lets read on... The market SHOULD... Should? Okay He is not sure and wants to hedge his bets. Fine. We will let that pass. Move on. "Move in Tandem..." Tandem means "One following or behind the other". Okay, so the markets will move behind something. And will closely follow this other things motion. Okay. And what is this other thing?

This thing that the market will follow closely is the "medium to long term fundamentals" !!!

What! And this is Guru Speak???

This gentleman has just told us that the markets will closely follow the Indian Economy. If the components that comprise this economy do well the markets will do well too. And vice versa. To add insult to injury this pontificating idiot adds the word "Should" to the begining of his sentence. He is not sure that the market will in fact follow the economy!

Where are the thinkers? Why do we have to deal with idiots who have nothing to say but say it aloud anyway!