ULIP: are they a good investment?

Hundreds of ULIP policies are being sold in the market by thousands of agents. ULIP stands for Unit linked Insurance Plans.
People blindly buy these ULIP plans, hardly understanding anything about the ULIPs, their working, their charges & what will be the actual money invested for them.

In this article, let me tell it with an example.

Can ULIP be used as an investment vehicle to create wealth?
That’s a million dollar question, but looking at the cost and commission structure, the answer to the above question is NO.
The biggest drawback of ULIP is that they have very high initial charges. Remember, wealth can be created only when you start big with your investments and opt for compounded returns. Unfortunately in ULIPs, most of your initial invested money is eaten up in the name of commission and charges. All this happens in the initial years, hence you end up loosing on the compounded returns benefits.

Let’s take the example of Kotak Smart Advantage ULIP. Have a look at the commission structure and administrative charges of Kotak Smart Advantage ULIP. In Kotak Smart Advantage ULIP, entire amount of the first year premium would not get allocated at all for investments. This premium (according to the product brochure) would be used to provide you a guarantee of 100 per cent of first year premium if the policy term is 5 years. That means if you invest Rs 1 lakh nothing would actually be invested in equities in the first year.

This simply means that entire amount you give to the ULIP management, goes towards the charges. You can now yourself decide if this makes a good investment. I really don’t know whether there are any good ULIP plans in the market, as I have limited knowledge about the brand of ULIP products. Complex structures for commission and charges make it more difficult to understand.

I have always recommended people to avoid investments which they do not understand and I would recommend individuals to stay away from ULIP plans as well.

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ICICI RICH ULIP NFO Review

ICICI Prudential Life Insurance has come out with its New Fund offer of NFO in the name of ICICI R.I.C.H. Fund or ICICI RICH Fund. Interestingly, they have a disclaimer saying that RICH does not necessarily mean Rich – it’s an abbreviation. In this article, I'll attempt to present a review of ICICI RICH (R.I.C.H.) fund. It should help you decide whether you should invest in ICICI RICH (R.I.C.H.) fund or not.

RICH stands for Resources, Investments, Consumption and Human Capital. So basically, what this fund will do is that it will invest in the companies which fall in the above 4 RICH categories and hence it will try to generate capital appreciation for the investors money in the long run. Suddenly from somewhere, these 4 categories have become the most promising sectors for ICICI fund management business. Does it mean that other funds from ICICI investing in other categories are not worth investing?

Then comes the advertisement part – There is a picture of 4 cricketers taken from behind their back. From the height & hair style, they seem to resemble Dhoni, Sachin, Bhajji and Ishant. There is a name on each of the t-shirt of the cricketers – Dhoni lookalike mentions “Resources”, Sachin for “Investments”, Bhajji for “Consumption” and Ishant lookalike for “Human Capital”. Not sure about others, but does Bhajji consume too much?? : -)

Anyways, the investment scheme is to invest in stocks and stock related instruments for the following four sectors:

• Resources: Stocks and companies which belong to natural resources like Oil, petroleum, Natural Gas, Metals, etc.

• Investments: Capital goods, Infrastructure, Engineering services, etc.

• Consumption: Consumer durables, Entertainment, Media, etc.

• Human Capital: IT, Technology, Biotech, any service or research oriented company stocks and shares.
However, I’m getting the question that what have they left out? Almost every single stock sector has been covered. What are they trying to invest in in the name of RICH? Don’t they think simply buying an ETF would be better option than offering this new scheme.

Related: An example of ETF

Portfolio allocation will be 80% to 100% in stocks, shares and equity related instruments, and remaining 0% to 20% will go to Debt related, Money market instruments or cash holdings of the company.

NFO for ICICI RICH fund will open on 15th march 2008.

Each NFU Unit will cost Rs. 10 per unit.

Tax Benefit under ICICI RICH (R.I.C.H.) fund: Not Available!

No info is available about the entry load and exit load of the ICICI RICH NFO The scheme is a ULIP or Unit Linked Investment Plan and will work on the basis of NAV or Net Asset Value as the value of the underlying stocks and shares will change every business day.

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LIC Health Plus: Unit-Linked (ULIP) Medical Insurance Policy

It’s time for LIC or Life Insurance Corporation to reap the benefits of ULIP and health insurance product segment. LIC, which is primarily the market leader but mainly concentrated in the Life Insurance segment, has now launched its first health insurance product, which is also the first unit-linked health policy to be introduced in the Indian markets.