Monday 29 February 2016
Monday 22 February 2016
ULIPS and Section 80C
One of Investments which are eligible under Section 80C
deduction is investment in ULIPS.
What is a ULIP? ULIP or Unit Linked Insurance Plan has a mix
of insurance along with investment. From a ULIP the goal is to provide wealth
creation along with life cover. The
seller of a ULIP puts a portion of your investment towards life insurance and
rest into a fund that is based on equity or debt or both and matches with your
long term goal. These goals could be retirement planning, children’s education
or another important event you may wish to save for.
Tax Deduction under Section 80C? Deduction is available on
ULIPS under Section 80C, provided the sum assured is at least 10 times the
annual premium. This is within the overall limit of Rs 1,50,000 of Section 80C.
Of course you can invest a higher amount, but the deduction will be limited to
Rs 1,50,000.
How do ULIPS work? ULIPS are usually designed in a way that
they allow you to switch your portfolio between debt and equity based on your
risk appetite as well as your knowledge of how the market is performing. It has
been noticed that many of the ULIP buyers do not have the time or adequate
knowledge to understand the mix they must keep between debt and equity and also
when to make the right switch. Therefore, if you are someone who has deep
knowledge of how the fluctuation of interest rates and equity returns work –
this may be the product for you. Also, it is wiser to invest in a ULIP with a
long term horizon, of at least 10 years.
Can Best Ulip Insurance plan be bought for
others? An individual may purchase a ULIP in his own name, or for spouse or any
child. Child may be married or unmarried, dependent or independent, minor or
major – all these investments shall qualify for deduction under Section 80C.
Tax benefit on maturity? You are allowed to make partial
withdrawals after 5 years. There is no tax on the withdrawals & maturity
for ULIPS provided the sum assured is at least 10 times the annual premium.
Source: http://blog.cleartax.in/ulips-section-80c/
Friday 12 February 2016
Ulips Back In Traction
Boom in stock markets and improvement in the overall economy
has made unit-linked insurance plans (ULIPs) to regain their traction once
again.
After 2010, when the Insurance Regulatory and Development
Authority (IRDA) revamped ULIP norms, private life insurers shifted their focus
to traditional products. This led to massive fall in ULIP sales.
Typically, when stock markets rise, a lot of customers tend
to surrender their policies to book profits but in the first half of current
fiscal, insurers have seen a fall in surrender of ULIPs.
Insurers say that increase in interest in ULIPs has been a
good opportunity for insurers to move towards a balanced product mix in line
with customer needs, unlike earlier where the industry witnessed a more
dominant mix in favour of either ULIPs or traditional products.
Life insurers are also encouraging customers to hold on to
their ULIP products for at least 8-10 years to avail maximum product benefits.
However, the IRDA has taken cautious note of surge in ULIP
sales, particularly, after the 2005 stock market boom when private life insurers
ULIP sales surged and the industry faced several complaints of mis-selling.
In a recent guideline, The IRDA has asked insurers to
structure Best Ulip Insurance Policy as long term
investment product and return at least 90% of premium paid by the
policyholders.
IRDA wants ULIPs to act as savings product rather than a
term product, specially discouraging them for older age groups where mortality
charge is higher.
Wednesday 10 February 2016
What Are The Different Types Of ULIP
Types of ULIP
Depending
on the purpose of investment ULIP can be divided into the following types:
ULIP for Retirement Planning: These plans
accumulate a portion of your savings over a period of time and the corpus
amount is made available to the policyholder at maturity for purchasing an
immediate annuity plan.
ULIPs for Child Education: These plans aim at
providing financial support for expenses related to children like education,
marriage etc.
ULIPs for Wealth Creation: There are many
ULIP’s with the objective of accumulating wealth over time which will help the
policyholder beat the rising costs by offering return on investment.
ULIPs for Health Solutions: Keeping in mind the
rising medical expenses, these plans allow the policyholder to claim for health
related expenses of any kind. Some plans may also fund your future health
insurance charges.
Most
insurers offer a wide range of funds to suit one’s insurance and investment
objectives, risk profile and time horizons. Different funds have different risk
profiles. The potential for returns also varies from fund to fund
The
following are some of the common types of funds available in India, along with
an indication of their risk characteristics.
As we
can see, equity funds invest largely in equity and carry higher risk. These
funds are preferable for young investors with higher risk appetites. Income,
Fixed Interest, Bond and Balanced funds provide lesser risk then equity funds.
Middle aged investors with medium risk profile can opt for balanced funds that
invest only part of the corpus in equities. Cash funds are an ideal option for
risk-averse customers.
Let’s
see how ULIPs fare in comparison with Mutual Funds in various attributes:
1. Complexity
Mutual
Funds are easy to understand products, especially equity mutual funds. Whereas,
ULIPs are slightly complex as they are structured products. However, the recent
regulatory changes have to a great extent decreased the ambiguity from these
products and hence they are easier to understand now.
2. Cover Amount (Sum Assured)
Mutual
funds do not have any life cover built into them so there is no concept of life
cover (sum assured) out here. Life cover is the money paid to the policyholder’s
family if he/she dies. In ULIPs, on death, either the higher of the cover
amount or the fund value of the ULIP is paid out, or both the fund value and
cover amount is paid out – this depends on what type of ULIP you have.
3. Costs
There
are no entry loads in a MF. In fact, this is one of the biggest differences
between ULIPs and mutual funds. The only charge that investors incur is a
recurring charge on the NAV that a MF is subjected to depending on its type and
corpus. Compare that with ULIPs, there are many charges, some of which get
deducted from the premium and others from the fund value. This is precisely why
ULIPs are considered expensive in the beginning as most of the charges hit you
in the initial few years. This is also the reasons why it is advised to stick
to ULIPs for a longer term, preferably for a minimum of 10 years before you
begin to see some good returns.
Mutual
funds are cheaper, but only in the short run. Over a long period ULIPs may give
you a better return over Mutual funds as the fund management charges are lower
than mutual funds.
4. Lock-in Period
Lock-in
period is the minimum period for which an investor needs to stay invested in a
fund/plan without attracting any penalty on complete withdrawal (i.e.
surrender). When you invest in ULIPs, your money is locked in for 5 years, so
this directly affects your ability to surrender or pull out the money in case
of an emergency; however, ULIPs give you flexibility to partially withdraw from
the fund as and when needed.
In mutual
funds, there is no lock-in except when you buy tax saving mutual funds also
called Equity Linked Saving Schemes (ELSS). These get locked in for 3 years so
money is not available to you should you need it. But in all the other types of
MFs, you can withdraw your money after a year without any penalty. However in
the case of ULIPs the idea is to get life cover along with the returns and
hence the question of withdrawing before 5 years ideally should not arise.
Even
though Mutual Funds offer a lot of simplicity and flexibility in terms of
investment options and withdrawal, they simply cannot provide the risk
The
investment space is filled with options and you should look at them, identify
your financial needs and then choose the right product.
Source : http://insuranceblog.asia/what-are-the-different-types-of-ulips/
Saturday 6 February 2016
Is It Time To Get Out Of High-Cost ULIPs ?
As
per estimates, aggressive unit-linked insurance plans (ULIPs) funds that
allocate 100% to equities have earned average annualized return of 9.43% in the
past five years against 9.24% delivered by the sensex during the same period.
However, these numbers only show the
rise in the Net Asset Value (NAV) and don’t reflect real returns for the
investors. Many charges are not taken out of the NAV but deducted by reducing
the number of units.
Before the 2010 guidelines,
insurance companies used to frontload the charges on these plans, making first
few years costlier. But in some ULIPs, the charges continue to be high even
after the pain period of initial years is over. In some cases, charges are as
high as 6.77% a year. If you include the fund management charges, the total
cost to the investor is nearly 7% a year. And if you take into account
mortality charges, the total charges paid by the policyholder will be even
higher. This means, a ULIP must grow
by at least 18-20% to deliver meaningful returns to the policyholders.
Hence, if you are holding such a
high cost plan, it may be the time to get rid of this investment. But go
through the fineprint of the terms and conditions before you close it. There
can be surrender charges on pre-2010 ULIPs.
After the three-year lock-in period,
the premature surrender charge is close to 3-4%. This gradually comes down over
the next three-four years but some policies charge 1-2% even in the fifth or
sixth year. Only after seventh year onwards there is no surrender charge.
However, before you surrender the
policy, be clear about how the proceeds will be deployed. There is no point in
withdrawing the amount if you plan to blow it away. In that case, it is better
to remain invested.
Sources : https://www.policymantra.com/blog/is-it-time-to-get-out-of-high-cost-ulips/
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