Invest in ULIPs - A Good Wealth Creator Tool in Long Term

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ULIP
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Invest in ULIPs - A Good Wealth Creator Tool in
Long Term
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• Out of the blue, Indian Insurance Industry has
  become the talk of Dalal Street as it has become
  a major contributor in terms of investments in
  equity market. Though the premium collection has
  slowed down in early 2009 to some extent but it
  has been gaining pace with overall healthy market
  sentiments. The premiums collected under ULIPs
  are the major driver in boosting the equity
  investments. The renewal premium of the industry
  in ULIP category increased from Rs. 26,638 crore
  to Rs. 37,543 crore, an increase of 41 per cent
  on year on year basis. In addition, insurance
  companies have increased their exposure in
  equities - they have invested Rs. 44,358 crore in
  equity in the April-December period of current
  fiscal year.
• The miss-selling practice in ULIPs are curbed to
  a major extent after the insurance watchdog,
  Insurance Regulatory and Development Authority
  (IRDA) introduced some ' investors' friendly
  ruling, putting the cap on charges up to 3 per
  cent and 2.25 per cent for ULIPs having
  maturities up to 10 years and beyond 10 years
  respectively. Moreover, the IRDA ruling on
  solvency ratio, corporate governance, public
  disclosures, payment made to intermediaries and
  allowing unit linked health insurance plans, have
  benefitted greatly to Insurance industry.

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• How do ULIPs perform well in long-term?
• The major objective of ULIPs is to build wealth,
  steadily in long-term along with an additional
  insurance cover. Investors should have a clear
  view that, investing in ULIPs is not to get a
  high insurance cover out of it.
• The Fund Manager in Insurance firms has an edge
  over other market related products, in terms of
  holding stocks for an extended period. Hence, the
  churning in portfolio stocks, measured by
  Portfolio Turnover Ratio (PTR) is relatively less
  or negligible. Since the churning involves costs,
  it has a major impact on fund's performance.
  Higher the Portfolio Turnover Ratio, higher is
  the cost involved.
• Moreover, IRDA's cap on total charges including
  cap on Fund Management Charges (FMC) in case of
  ULIPs have brought another transparency
  benefiting policyholders in terms of increased
  returns at their ends.

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• A close look on the performance of other market
  related products vis-à-vis ULIPs gives a
  startling fact other market related products
  lags behind ULIPs return by a larger margin in
  the long run which confirms that investments in
  ULIPs are ideal investment vehicle for wealth
  creation in long term. On an average, the
  historical fund management charges (FMC) in other
  market related products (Mutual Funds come to be
  around 2.1 per cent) while in ULIPs, the maximum
  FMC is capped at 1.35 per cent.
• For example, a periodic investment of Rs. 1 lakh
  in a diversified equity linked fund (ELSS) for a
  period of 15 years grows to Rs. 28.54 lakh at an
  assumed growth rate of 10 per cent giving an net
  yield of 7.69 per cent (considering an average
  FMC of 2.1 per cent) while the same amount
  invested in ULIP for the same period may range
  from Rs.28.63 lakhs to Rs. 31.59 lakh at an
  assumed growth rate of 10 per cent giving a net
  yield ranging from 7.97 per cent to 9.03 per
  cent. The final value goes down further if we
  consider other tax-saving instruments such as PPF
  giving a return of 8 per cent annum. An
  investment of Rs.1 lakh per annum in PPF for a
  period of 15 years grows to Rs.27.15 lakh.

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• So, clearly, ULIP score over other products in
  terms of returns and additional benefit such as
  insurance cover however, it scores below PPF as
  investment in ULIPs involves high risks. The
  return in ULIPs goes up further due to less FMC
  if the investment choice is debt fund and assumed
  rate of return is 10 per cent (in debt funds, the
  FMC is generally around 0.75-1 per cent). The
  table shows the different returns as given above.
  However, the high entry costs along with
  operational costs mar performance of ULIPs having
  or when opted for shorter maturity period.
• Source http//bit.ly/2d68fr1

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