Is LIC insurance policy halal or haram

I have already clarified in an earlier post that only term insurance can be considered in the subject of halal/ haram:
Is Life Insurance Halal in India

Building on that we can analyze the policies of India's favourite Insurance destination.
Many Muslims may have been subscribed to these policies both for tax benefits as well as the promising returns. Those that have been blessed by knowledge may have curiosity to research the term and may have invested in Unit Linked plans (ULIP).
But biggest problem of all Insurance based Investments is transparency. It is not at all easy to find where exactly your money is invested. Mutual Funds are so much better since you can see every percentage of where exactly it is invested.
Here we analyze the investment pattern which will conclude what is permissible and what is not. Although this article takes LIC for reference, but it is applicable to all insurance companies since they all have similar plans.


LIC Term Insurance Plans:

Plain simple explanation: Except Term Insurance (Assurance), rest all are not permissible.
The Term policies in LIC are named:

1. LIC's Anmol Jeevan 
2. LIC’s Amulya Jeevan
3. LIC eTerm policy

All are pure insurance and not investment that will give you return on maturity. Since these are not "money-back" plans there aren't any investments made.
These are the only ones fine; rest all are non-permissible. Let us explore each category and check the reasons for the same.


Endowment Plans:

Whether it is single premium or any other Xxxxx Jeevan plan it doesn't matter. The fact that you are getting money back points to some form of investment. So we only have to examine where the returns from investment are coming.
All plans of LIC invest into Government debt unless explicitly specified that the plan investments majorly in equity.
So government debt means loan to government and the profit is gets is the INTEREST it receives from government for those loans.
So all these plans are just Interest based investments and obviously not permissible.


Money Back Plans and Child Plans:
Exactly same investment pattern as Endowment plans. Hence Interest based investments and obviously not permissible.


Pension Plans:
Similar problem either Interest based (Jeevan Nidhi) or Annuity based (Jeevan Akshay).
Annuity is nothing but interest earnings.


ULIP (Unit Linked Insurance Plan):
This is one plan that is sold to many Muslims who might raise the interest objection to an insurance agent. Many Muslims are told that investment plan can be chosen and you can invest 100% into stock market which is halal.
However, things are not so simple.
And also here comes the comparison with Mutual Funds. In case of Mutual Funds I can easily search and get the complete investment breakup of every single rupee. I know how much is invested in equity in which sectors and in which exact company's stock. This helps in finding out how much of the MF investment is in haram stocks.
All this is very difficult in ULIP. You cannot easily get these details at all. And in case you can get the details, please check the stock market investments. Am sure you will find major part of investment in Financial Sectors especially bank stocks.
Also not 100% is allowed in stocks. Most plans will restrict it to 70-80% in stocks and rest will be in Government Securities or Money Market Instruments (both interest based)
And this is the reason why ULIP cannot be counted as halal.


In the end I would suggest to completely read the policy document carefully and research on the internet. Do not fall into the Insurance Agents trap or the Investment trap since it is clear that other than basic life insurance rest all is purely interest based income.

Shariah Compliant Mutual Funds in India: Are they really Islamic?

Update (30-Dec-2016): Adding Fund Performance section.

Most people (including Muslims), are not really aware of Mutual Funds (MF). Many literate people might have heard it but few would have invested after some investigation in the fund.

I am not discussing MF details; there are plenty of articles out there to explain it. Also a general islamic classification of MF's is discussed here: Islamic Shariah classification of Mutual Funds in India
In this article we only discuss the halal status of Mutual Funds who declare themselves as Shariah based.

Summary

For those who need quick answers, here is a list of shariah compliant MF's in India:

1. Tauras Ethical Fund: Much better than other MF but Not 100%. 
2. Tata Ethical Fund: Likely to be valid.
3. SBI Shariah Equity Fund: Never launched.
4. Goldman Sachs CNX Nifty Shariah BeES Equity Fund; It self declares not 100% shariah based

There are only 2 Shariah based Mutual funds in India (note Goldman Sachs is ETF, not MF). Now we discuss in detail about them.

What makes them Shariah based

Most primary thing that makes them Shariah based is they follow a Shariah stock index S&P Shariah or CNX Shariah). What this index is and what stocks it contains will be a separate discussion. Some of its characteristic:

1. Investing in islamically legal business companies.
2. Debt is not high.
3. Interest income is very low.

Other characteristic:

1. Long term investment.
2. No short-selling or day trading which is same as betting.
3. No liquid investment in interest bearing components.
4. No lending of MF assets.
5. No investment in other mutual funds.
6. No investment in any derivatives.

Fund Details

These are equity funds but no tax saving. There is no entry load; no exit load if withdrawn after a year; trail commission 1.5 to 2.5%.

Performance is good enough for long term.

Tauras Ethical Fund: 

It invest based on stocks as present in S&P BSE 500 Shariah index. If you consider the S&P Shariah index to be 100% halal, then this fund will be fine. However, the index definitely contains stocks of companies that have upto 30% debt or 5% interest income and the fund does nothing about it. All this is clearly mentioned in the Scheme Information Document. And this is the problem with the fund.

Tata Ethical Fund:

This fund invests in stocks based on the CNX Shariah 500 Index. As a result, it suffers from the same problem as that of Tauras Ethical Fund. However, it does one thing important: Purification.

Once the Mutual Fund has earned profit, it calculates any non-legal income from Interest and donates to charity and you only get the actual profit.

Because of this am tempted to say that this could be the only halal MF. Only thing am not sure how they deal with stocks of companies that have taken loans.

Fund Performance:

It is important to also see if your investment is giving your profit or loss. Else you would be better off not investing at all.
Performance of all 3 Funds is below average compared to other Equity Funds.
They are not making loss but the profit is very small about 10-13% over 3 years. This obviously is far less than inflation. But this is the state of most halal investments; the returns are very less.
Perhaps this is the test of Allah, most haram investments will give excellent returns.

Concluding Notes

• If you are determined to invest in MF then Tata Ethical Fund can be considered.
• SBI Shariah fund that was to be launched with tax saving but did not see the light of the day.
• Goldman Sachs CNX Nifty Shariah Index Exchange Traded Fund itself truthfully declares that although they follow a Shariah based stock index they are not completely shariah compliant. This can be found in its Scheme Information Document.