Jeevan Aastha set to miss target

LIC estimates Rs 9,000 cr collection against projected Rs 25,000 crore.

Life Insurance Corporation’s (LIC) Jeevan Aastha, which was planning to mop up Rs 25,000 crore, could end up collecting only Rs 9,000 crore against its original projection of Rs 25,000 crore.

Jeevan Aastha, a single-premium close-ended scheme that promised to give guaranteed returns, opened on December 8 and closed today. Almost 1.2 million policies have been sold to customers as LIC has been promoting the policy quite aggressively in the past one-and a-half months.

The scheme had collected only Rs 7,000 crore till yesterday, and senior officials are expecting another Rs 2,000 crore collection on the last day.The reason for the lower-than-expected collections: Low returns and preference for cash by investors.

“So far we have garnered Rs 7,000 crore. We are estimating another Rs 2,000 crore from today’s collection. The initial mark of Rs 25,000 was only a projection,” said D K Mehrotra, managing director, LIC. However, given the market conditions, the collection is not too bad, he added.

The unique selling proposition (USP) of the policy was returns of Rs 9 per Rs 1,000 and Rs 10 per Rs 1,000 for five and ten years, respectively.

Market experts cite many reasons for the lower=than-expected collections. For one, the scheme is going to invest mostly in debt instruments as the returns are stable, if not high. For instance, investments in long-term paper like a ten-year bond would give a yield of 5-6 per cent. Shorter term instruments such as treasury bills (90 days) would give a return of 4-5 per cent.

Given the investment pattern, the returns from Jeevan Aastha will be quite low. Today, fixed deposits are offering rates of 8.5 per cent for five-year tenure. Comparatively, Jeevan Aastha is offering compounded returns of 6-7 per cent.

Another reason that could have hit the collections is adverse market conditions. “With people preferring to sit on cash at this point in time, the target looked over-stretched. However, in better conditions, LIC would have managed to collect it,” said Pavanjit Dhingra, chief executive officer, Prudent Insurance Broker.

Other guaranteed return schemes that have hit the market in recent times include Religare AEGON’s Life Guaranteed Return Plan, Aviva Life’s India Bond and IDBI Fortis’s Bondsurance. Only India Bond is a close-ended scheme like Jeevan Aastha.

“Since there isn’t much liquidity in the system, investors aren’t willing to lock in their money in a close-ended scheme for five or ten years. The primary focus is on short-term instruments that will generate reasonable returns,” said Rahul Agrawal, chief executive officer, Optima Insurance Brokers.

Correction

Jeevan Aastha offers a return of Rs 90 per Rs 1,000 and Rs 100 per Rs 1,000 invested for a period of five years and 10 years respectively, and not as reported. The error is regretted.