Which Investment Option will you choose?
Investment Options
1) Option A: Invest INR 5L p.a. for 17Y and get INR 10L for the next 25Y
2) Option B: Invest INR 5L p.a. for10Y and get INR 6.13L for the next 25Y + INR 50L at the end
3) Option C: Invest INR 5L p.a. for 7Y and get INR 87.5L at the end of 20 years
If you managed to select any of the above options then you probably need to read below for an important takeaway in managing your personal finance.
All the above options are from traditional insurance policies which fail to give appropriate life cover and deliver sub-optimal returns. Whenever you are showcased a product by an insurance agent, always ask for the annualized return from the instrument. Below is the XIRR of the investment options
1) Option A : 5.36%
2) Option B : 7.11%
3) Option C : 5.11%
Our human mind does have the potential to do the long term compounding math and hence many DIY clients do get surprised when they get to know the actual return.
So never make an investment decision just by looking at the absolute numbers - always look for the expected annualized return.
P.S. - Some of the investment oriented traditional insurance products can be considered as a part of a long term debt asset allocation for certain clients.
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4 окт 2024
