‘Felt like a scam at the end…’: LinkedIn post on ‘investment’ returns after 15 years sparks debate

A recent LinkedIn post by Kirtan A. Shah, Founder and CEO of Credence Wealth, ignited a debate, highlighting “The most common investing mistake.”

The wealth management firm owner shared an instance where 15 years back an investment was made in a very popular insurance policy but after its maturity, the low returns felt like a ‘scam’ to him.

The disappointing reality of low returns

According to Shah, an individual paid an annual premium of ₹3,187 for 15 straight years on the investment, totaling an amount of ₹47,805 by the end of 15th year.

After a decade and a half, the maturity amount received was just ₹69,530. A quick calculation, as shared by Shah reveals a meager 4,55% return on the investment.

This low return highlighted a common misconception that many people hold about insurance policies which are often marketed as investment vehicles.

The smarter alternative given by Shah

In the post, Shah also gave some alternative approaches towards investing for better returns. Instead of combining insurance and investment, he advocates for separating them.

He explained that if an individual takes a term insurance of ₹2 lakhs which this policy provided for and invested the remaining amount into Public Provident Fund (PPF), that would have been significantly more cost-effective.

This strategy as advised by Shah offers several advantages such as receiving the same insurance, the same tax advantages, the same tax free maturity, the same risk free investment but 7 per cent returns on the investment instead of something as low as 4.55 per cent.

Who truly benefits from investments in insurance ?

Shah also pointed out where the real ‘returns’ went in the earlier case of insurance investment.

He emphasised that “If you invest in insurance hoping to receive some returns on your investments, the joke is on you.”

The rationale behind this comment is that in insurances, the agent can make up to 40 per cent commission in the first year, and then 8-10 per cent over the life of the policy.

While the policyholder is settling for 4.55 per cent, the agent is making a “killer” income, he said.

How did netizens react to the post?

Most of the users agreed with Shah’s analysis in the post’s comment section. Some users further delved into the investment scenario and gave their personal inputs.

An user said, “Insurance and investment are two different aspects. People normally make mistake buying this combined (traditional) product which normally gives 5-6 % return.”

Another user also advised another investment strategy, as they stated, “Agreed! Endowment plans are the worst forms of investment. Better go for a combo of term plan + PPF/MFs.”