SBi Life Insurance has just launched a new pension plan – Smart Pension Plan on new guidelines of IRDA. I've already posted the details of this plan from the official website of SBI Life Insurance.
But shall you invest in this plan? Let's interpret the plan in simple language and conclude the result.
The plan provides Guaranteed Pension Fund (GPF). This fund invests maximum of 10% in equity and the rest 90% in debt. Can you expect more than 4% with this kind of portfolio? Also, this return is based on Gross premium (i.e. premium – charges).
Now what are these charges.
1. Fund Management charges: It will be 1% p.a.
2. Guarantee Charge: 0.35% of the fund value per annum. ( I don't find any logic in this charge)
3. Policy Admin Charge of Rs.50 per month i.e. 50×12 = Rs.600 p.a. That means if the investor invests Rs.50,000 p.a., he will pay 1.2% as policy admin charges per annum.
Add all the above charges. What you're getting out of that?
Another line quoting from page no. 3 of its official brochure.
"The guaranteed interest rate applicable shall be subject to a maximum of 6% and a minimum of 3%. "
With this kind of inflation and still increasing, can you survive your old age with these kind of so-called Guaranteed returns. All above, the pension from this plan is taxable.
Even FD in banks, PPF, MIS etc. gives more return than this return. One can plan to invest in this scheme to get some milk or biscuits at old age, but not more than that.
I think, this is the best example of worst plan in the industry.
It's better to invest in equity diversified mutual funds via SIP and expect a 15%-18% in long term and that too tax-free.
These are my views. You're free to interpret the plan and share your views and doubts in comments section below.
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February 22, 2011