HDFC Life Sanchay Review and Returns – Where is the Catch?

Here is the HDFC Life Sanchay review, summarised in the very first line of article – DO NOT BUY.

HDFC Life Sanchay is a guaranteed trap rather than a savings cum investment insurance plan. This product offers returns in the range of 5%-5.3%. Some of the savings bank account are giving better interest rates than this product.

If you have already bought this so-called investment product, there are only 2 escape routes left.

1. Surrender the policy and bear the loss that comes with it. Otherwise, just forget the money if you have paid premium for the first year only.
2. Continue using the product and get settled with 5% returns.

The reason for giving the clear-cut review of HDFC Life Sanchay in the beginning of the article isn’t about 5% returns. Though, you must have skimmed through various posts of different bloggers showing the same returns. This article discusses how investors like you get trapped in investment products like these.

• What do you need to understand about this product?
• Where is the Catch in this product?

To give an instance, let me start with a story in order to help you understand the product better.

Ajay and Sanjay are close friends. Since Sanjay wants to start a business of his own, he asks Ajay for a loan.  Without being skeptical, Ajay asks Sanjay to clarify beforehand what would be the interest rate for this loan. Sanjay requests Ajay to give him a loan of 1 Lakh each year for at least 5 years.

Moreover, he agrees to pay an interest rate of 8% on 4.5 lakhs from the first year onwards.

Sounds interesting, doesn’t it?

Though the loan is in installments, Sanjay agrees to pay 8% interest on an accumulated amount of 4.5 lakhs. Also, Sanjay is ready to pay the interest of 8% from the very first year onwards.

Sanjay puts up a condition that he’ll pay the accumulated amount only after 16 years. In simple words, Sanjay’s statement implies that the principal amount and interest would be paid in the 17th year.

Sanjay continues by saying that if you ask me for money before that, you’ll be charged a penalty as follows:

1. I will not make any payment if you ask about it after 1 year.(Neither principal nor interest)
2. You would get only around 30%-40% of your principal if you asked about it after 2 years.
3. Even if you ask me after 10 years, I will give you only 70-80% of the principal amount.
4. If you die during these 15 years, I’ll return 10 times of the first year amount to your family. The payment will be made on the basis of 10 times of first installment or total principal and interest for 16 years, whichever is higher.

Despite of being doubtful, Ajay spotted an excellent opportunity which could offer him 8% guaranteed returns for 16 years. Also, there was no evident reason that Sanjay would default.

HDFC Life Sanchay Review

Now, that you are familiar with the story, let us connect the example given above with HDFC Life Sanchay Review.

1. 1 Lakh is the premium that you would be paying to the insurance company.
2. 4.5 Lakhs is the maturity sum assured promised, on which a guaranteed addition of 8-9% is given to you. (It’s equivalent to 4.5 times of the yearly premium.)
3. First 3 points mentioned above refers to the surrender value in case you don’t want to continue the policy.
4. The 4^th point mentioned above is the sum assured which will be paid on death. Though there are different options given within this product, these 2 seem to be higher than the rest.
5. 8% interest rate is a guaranteed addition in the plan.
6. 16 Years is the term of the policy.
7. 5 Years, during which Ajay will give 1 Lakh/yearly is the premium payment term.

NOTE – As of now, the company has launched a new product, namely HDFC Life Sanchay Plus (I’ll review the same later). Although the existing product is still present on HDFC Life site, I don’t know whether they’ve discontinued it or not. May be, it is being sold offline since I couldn’t get the benefit illustration over the internet.

Returns

Now, let us see how guaranteed addition of 8% in the HDFC Life Sanchay Plan becomes 5% in the long run.

• Premium Per Annum – Rs. 1,00,000
• Maturity Sum Assured – Rs. 4,50,000
• Term of Policy  – 16 Years
• Guaranteed Addition on Sum Assured – 8%

Here is the IRR table for HDFC Life Sanchay

The negative 1 Lakh is the premium amount, you will pay for a time period of 5 years. Whereas the positive value of 10.26 Lakhs in the 17^th year is the amount that you’d receive upon maturity.

Another important point to take into consideration is that I have not incorporated GST in the returns. Nonetheless, had the premium been inclusive of GST, the returns would be 5.1%.

Where is the Catch?

The company is offering returns on maturity sum assured, which is only 4.5 times of your annual premium. Also, it is only assuring a simple interest rate of 8% on your maturity sum assured. Thus, the interest is neither being offered on the premiums that you’re paying to the company nor the accumulated amount. It is being paid on the fixed amount.

(The maturity sum assured is approximately same across all ages. I couldn’t confirm it as they have not yet mentioned any such thing in their brochure.)

What will happen if the company pays you 8% returns on your accumulated investments? Now, here comes the magic of compounding.  Your money will continue increasing and its value at the end of 16^th year would be  around 15 Lakhs. Take a look at this table to check and verify.

Ideally, you thought that you would get 14.8 Lakhs while you’ll only get 10.3 Lakhs. There is a considerable difference of 4.5 Lakhs.

I forgot to tell you, that in the above example, Ajay is the customer whereas Sanjay is the insurance company.

The catch is simple interest rate on a fixed amount through out the term.

HDFC Life Sanchay – Details and Features

Do I really need to add the details and features?

• What is minimum and maximum age of entry?
• What is the policy term in this product?
• How much is the minimum and maximum sum assured?

I think, the job of listing the details and features should be left for agents and bankers.

Conclusion

If you still feel that Ajay should give loan to Sanjay, be smart like Ajay and purchase the policy immediately.

As far as my decision is concerned, I’d like to remain dumb and stay away from such a trap.

Thanks for sparing your valuable time to read this article. Lastly, get in touch in with us so as to share your views on “HDFC Life Sanchay review and returns.”

Till then, Keep Investing.