There was a time when equity investments were almost unknown to the common, small, investors. Mutual funds were not there and the only investment avenue available was Bank FD, NSS and PPF.
Since then we have seen evolution of the financial markets and emergence of other avenues of investment.Unit trust made it's appearance in 1964 perhaps in a small way with Unit-64 scheme. I don't recall when exactly , National Savings Certificate made it as an offering eligible for tax exemption under 80CC or some such IT section. Those days, early 1970's, there was a differential in the interest rates on various savings instrument available with the rate on the tax-exempt instruments being a little lower than the others. By 1-2% or so. Fair enough,that was.
That we thought was logical due to govt efforts to avail of cheaper funds from public to supplement funds available for public investment.
It, perhaps, made sense those days for the Govt to offer tax incentive to get people to go for investment in the LIC products. To provide a leg up to the Life insurance as a product for risk cover at least. The returns those days from the insurance offerings from the only Life insurance company, LIC was as poor as it has always been. But the inherent assumption, now proved wrong & infructuous, that putting money in LIC was ALSO an investment avenue was sought to be inculcated in the public psyche. Through the tax exemption that went with it. {It should now be withdrawan, without further ado.}.
Still the only reason for most of us availing, reluctantly, for the LIC offerings was only the tax savings accruing therefrom. That may have changed over a period of time as people have come to believe, over a period of time, that even LIC products can be a viable investment avenue for the private savings. THE PURPOSE, OBJECTIVE of this post is to give a lie to that incorrect view.
Last few days,I have attempted ,on fb, to do that and seek other knowledgeable men to speak up for and against the subject.
In 1988 or thereabouts, SBI MF came into being to be the second MF outfit. Soon others such as CANARA came in too. In nineties , life insurance companies other than LIC made a debut thereby widening the market. UTI came up in eighties with ULIP to offer an investment product which offered tax shelter as well,while offering an equity linked MF product. Obviously these schemes opened up the market by providing a hybrid product offering the best of both worlds. You know what I mean.
The FERA dilution offerings of MNC companies shares to public in 1977 onwards caused the popularity of the Equity markets to sore suddenly by offering substantial gains to the retail investors . This was a welcome trade off from driving the blue chip foreign companies away and out of the country. Investment avenues were expanding beyond our expectations.
When did NSCs come in ? These were there in 1980's surely. PPF was always one of the better tax-exemption driven investment avenue with one of the highest returns. It still could be. Returns being tax exempt.
In the situation prevalent today ,it seems to me that the new Life insurance companies have attempted to double as MFs in order to increase the AUM exponentially and to make their products more attractive. It is anybody's case whether the Life insurance companies should be allowed to do this. What are the practices elsewhere ?
One un-desirable outcome of this has been creating a confusion in the minds of the gullible investors ,conning them into opting for the Life Insurance products as an investment products. ( Informed view being that insurance products are not a good investment avenue at all, Not by a long rope.)
Experts can say whether this is incidental or accidental or a scheming and inappropriate approach by the insurance companies to CON the retail and un-informed investors.
My verdict as a senior banker and an investor is that this is of a doubtful variety. That is, Guilty till proved otherwise.
 DK JAIN EX CGM,SBI,MP-Chhatisgarh
IIT(KGP), IIM (Ahemdabad)
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