In case you do not know about Saina Nehwal, she is an ace badminton player, former World no. 1, currently no. 2. She has represented and won for India in several tournaments and won the first Olympic medal for India as well. She is a sportsperson par excellence. But when it comes to money…
I just came across this news article, with the headline –
Rahul Dravid, Saina Nehwal, Prakash Padukone duped of crores of rupees by Bangalore-based firm.
In March 2016, 2 years ago, I had written about “How Saina Nehwal invests, worries me!“. Looks like the post didn’t reach her.
At that time, she was endorsing an insurance product.
***Excerpts from the March 2016 note***
Recently, Nehwal gave an interview to Economic Times on her investment preferences and style. Here is a link to that interview.
I was shocked and devastated to read it.
Well, you might say it is none of my business as to how she invests money and probably you are right. But when the same is published in a national newspaper with wide reach and influence, I do tend to get worried.
My first worry starts at the sub text of the headline that says
Saina Nehwal advises savers to put their valued income in LIC or FDs as she finds these two are best options and are also hassle-free.
Her personal investment style has been made to sound like a gospel for the general public. It is not.
Moreover, her investment style comes across as unthought of and random. I wonder who her investment advisor is!
I am taking up two big points she mentioned in the interview and help you (and hopefully her, if she reads this) see the truth.
Saina Nehwal invests in Bank FDs
Saina feels that Bank FDs are hassle free. No doubt about that. But for her income tax bracket, they are also one of the most inefficient investments in protecting the value of her money. She already loses so much to tax. Add the demon of inflation and what remains is virtually nothing.
She could easily look at liquid or ultra short term debt funds which will allow her to index her costs and pay lesser tax.
She may also subscribe to Tax-free bonds, which she says she has not invested in so far. That would give her far better tax efficient income.
And they all are equally hassle-free.
Gungho about LIC
Saina goes on to say that “this year I have gone for a huge investment – roughly over 10 million per year – in life insurance with LIC India for a continuous 16 year period. I found it a hassle-free investment. It will protect my life and will give a huge pension as a means of livelihood after I turn 40.”
LIC is charging a premium of Rs. 1 crore per year. Of course, we don’t know which product but it sounds like a pension plan since it will pay her a pension at the end of the tenure. Let’s assume that there will no growth in the amount she pays as premium. So at the end of 16 years, the value would be just Rs. 16 crores.
At an annuity rate of 8% (LIC can be real generous at times, you see), she will get about Rs. 11 lacs per month for the rest of her life. Mind you, she has invested the entire maturity value of her insurance policy into buying an annuity.
Yeah, as Saina mentions, that sounds like a huge “pension” in today’s terms on a monthly basis. But she forgets one thing. In 16 years and then from every year there on, inflation is going to make deep holes in this fixed amount.
(Perspective: Rs. 11 lakhs 16 years later is worth Rs. 3.5 lakhs today. In 20 years, it is worth Rs. 2.4 lakhs today and in 25 years, it is just Rs. 1.5 lakhs today.)
A rupee tomorrow is worth much less than a rupee today.
That insurance cover too is a sham. It is an unnecessary cost on her policy which she can easily do away with.
Unfortunately, LIC has become her best hassle-free investment – one that comes at a huge cost.
The sad truth is that, the only one who benefits from this investment in LIC policy is LIC. It gets the premium money for the next 16 years and then gets to keep the maturity amount too in the name of providing annuity / pension.
And someone (someone) is earning a real fat commission every year for the next 16 years and after that on the pension annuity too, unless Saina Nehwal calls up an advisor to see through this sham.
***End of excerpt from March 2016 note***
You see, not much has changed since then. Actually, it has.
Because, contrary to her own advice last time, she now went ahead to invest in some shady investment company (or a ponzi scheme), which has returned minus 50% (- 50%) of her investment.
…Nehwal received Rs 75 lakh on an investment of around Rs 1.5 crore…
My heart goes out to her. I am in deep awe of her talent but she doing this to herself, beats me!
It is not that she needs more money than she already has. I hope so!
Then what is the reason for falling for the sham investment schemes.
I don’t think it is Greed.
After that, I can see only one reason. Taking investment advice from the wrong people.
Saina knows and keeps the best advisors and coaches for her game. Shouldn’t she do the same thing for her hard earned money?
***Continued from the March 2016 post***
Who advises Saina Nehwal to invest?
As I had mentioned her investments appear random and not thought through. Probably, she doesn’t have an investment advisor at all.
If there was one, we would get to read, most importantly, about her goals. It could be a new academy she would want to set up to train young ones in badminton, a social foundation to offer scholarships to the bright and needy, her own retirement (which has been mentioned in the passing) and a business venture (she mentions one).
Saina says the best investment advice she ever got was to invest in LIC or FDs. I start wondering who told her that. Not an investment advisor for sure.
She probably didn’t realise that not only she gave her hard earned money to LIC but she also advertised the company, for free.
Should you follow her advice?
NO! Please do not let celebrity wisdom bother you.
Work on your own personal investment style.
Meanwhile, if anyone knows her, here is a post that you can help her get her hands on.
10 Money basics you must never forget
Remember,
A fool and his money are soon parted. – A wise person.
As you notice, this is now just about Saina, but one of our favourite cricketers Dravid too.
What must have happened to penetrate “the wall”?
Have you been duped too? What are the lessons learnt? Do share.
where should I invest in then? if not, LIC or FD.
LIC as the name suggests is for insurance, not investments. They do have an AMC arm but it has one of the worst performing mutual funds ever.
FDs are not bad if you are a senior citizen whose combined interest doesn’t cross the tax bracket. Even in, you should invest in SCSS (senior citizens savings scheme) which gives you the highest return that’s backed by the government of India itself, so it’s as safe as it gets.
For everyone else, you should not only beat inflation, you should get a piece of the growth that India is seeing. Which we can only do through participating in owning the companies that benefit from India growing. That means, the stock market.
But an average layman knows nothing about stocks. So you should either be able to pick mutual funds, or consult a financial advisor.
The person to whom you commented on this blog is such a financial advisor, so welcome to this place. Look around, read more articles, learn, and schedule a call with Vipin if you’re still unsure.
Hi, Vipin
I would like to add something to what you said about FD. I am a senior citizen and I am in 30% tax bracket and was always averse to FD’s because of their tax inefficiency. At my age I do need to have some money almost liquid and available at short notice . Arbitrage fund was one for me as lock in period was just one year to take advantage of LTCG. Now they will be taxed STCG or LTCG not withstanding. Putting money in liquid fund or ultra short duration debt fund is one option but for tax efficiency or indexation benefit ,holding period is now three years. What if I need money before three years. With new provisions in this year giving relief of up-to 50000 in interest on FD , I feel now one can put some amount in FD.
Your comments will be appreciated.
PS-this applies only to a person above 60 yrs.
Dear Shri Jain,
I appreciate your points.
All investment instruments have a purpose and should be used appropriately. However, blind faith on any is not desirable.
Thanks
If I invest in LIC insurance, it gives me around 4-5% annual return, if i invest in FD, it gives me 7% and if I invest in a mutual fund via sip then it gives me around 15% annual return.
But i just want to know that the above fact is true or not?
How can mutual fund give me almost double return as compared to LIC or FD?
To use a simple reasoning, you are compensated with extra for taking on uncertainty. LIC or FD is guaranteed, no uncertainty as such.