posted on 3:32 am in Morning , 18th Jan 2008
ICICI Prudential has introduced Return Guarantee Fund (RGF) (Click on this to read more) in this troubled times . I can see that whenever these bad times comes for Equity Markets , These companies cook out these kind of products with some “Guarantee” or “Safe” or “Assured” word in it and then take advantage of public emotions …
When Equity markets are down and its the best time to get invested in start investing in Equities for long term wealth creation , at that same time these Great Institutions come in the scene and play with public ignorance . They make complicated products and provide totally humiliating returns with labeling it as “safe products in these troubled times” . They are only safe and nothing else …
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Another product from LIC was Jeevan Astha , which attracted zillions of investors across India who just invested in that policy mostly without understand the clauses and the complexity of the product ( read : http://finance-and-investing.blogspot.com/2008/12/jeevan-astha-another-idiotic-product.html )
Just putting “safe” , “assured” and “guaranteed” words with some product does not make a product Great . If a product is not simple enough to understand, most probably its a disaster . Please stay away from it .
One of my Friend Fell into trap of this and thought of discussing it with me , Please read the chat between us to understand more about this product . (please excuse for the spelling mistakes and format)
Starting from Between …
shivani@GMAIL: isme 3 saal tak premium dena hai
shivani@GMAIL: lets say 50k each
shivani@GMAIL: so 1lac 50k total
shivani@GMAIL: after 5 yrs we’l get 75k for 50k given
shivani@GMAIL: wen i asked them , wil it be 75k * 3 they said yes
shivani@GMAIL: so it means 150% guaranteed return hai
manish: no
manish: that is not true
shivani@GMAIL: on top of it
manish: They are lying
shivani@GMAIL: let me complete poora
manish: its not for all the 3 years
shivani@GMAIL: they wil invest the money in diversified markets
shivani@GMAIL: in case there is profit on the investment we will get that also..
shivani@GMAIL: thats it
shivani@GMAIL: ab bolo
manish: ya .. so the first thing is that this is not a stand alone product
shivani@GMAIL: not for 3 yr!
manish: RGF is not a product
manish: its a extra plugin kind of thing
shivani@GMAIL: right
manish: which you can use with there other 4 existing ULIP products
shivani@GMAIL: ok
manish: so you can choose any of those ULIPS along with RGF
shivani@GMAIL: ok
manish: now , in ULIPS it s always there that you have to pay for min 3 years
shivani@GMAIL: ok
manish: so the first premium you pay will be in RGF
manish: and there is min return of 50% on RGF fund
manish: I mean the first year fund
manish: all other payments (from 2nd yrs) will be in any one ULIP of your choice
manish: which you will choose at the start
shivani@GMAIL: haa ek cheez aur.. they said they wil provide insurance cover if we want. with a premium o 130rs on 1 lac sum
manish: yes .. that’s true
manish: you can check the numbers with them
shivani@GMAIL: no we will not choose they said.. they wil do it,
shivani@GMAIL: for Ulip
manish: you have to choose the fund in the start .. I am telling what there presentation says ( http://www.authorstream.com/Presentation/ashish2208-122442-rgf-entertainment-ppt-powerpoint/ )
manish: you have to choose one of there 4 existing ULIPS
shivani@GMAIL: ok
manish: apart from the first premium , the returns will depend on there performance
shivani@GMAIL: hmm..
manish: if you choose equity opiton , then that money will be invested in Equity markets
shivani@GMAIL: so they lied when they said it will be 75k * 3??
manish: if you choose debt option , then in safe thigns
manish: yes
manish: that’s a lie ….
manish: that can not be the case
manish: mis selling happens
shivani@GMAIL: oh aisa kya
manish: yes
manish: and other thing is
shivani@GMAIL: hmm..
manish: the premiums which you pay
manish: from that allocation charges are also cut
manish: and they are heavy cuts for initial years
manish: almost 15-20%
manish: or more
manish: and they seems to have put all this very differently
manish: Its not that you pay 50k and get 75k at the end of 5 yrs
manish: you will be allocated units , which will of Rs 10 NAV
shivani@GMAIL: i asked that
manish: and it will be of Rs 15.03
shivani@GMAIL: are there any commission charges etc
shivani@GMAIL:they said no
manish: yes
manish: there are no commission charges
manish: 
manish: there is nothing called “commision charges”
shivani@GMAIL: then? allocation is?
manish: they are very right
manish: but
manish: ther are allocation
manish: charges
manish:
manish: allocation charges are not commision charges
manish: I understand that you meant to ask “any charges”
manish: but there is noting called “commision charges” , so they said correct that tehre are not
manish:
shivani@GMAIL: ok can u pl explain me this rs10 NAV and rs15.03
manish: commiosn is geraerally taken by middle men
manish: yes .. When you invest 50k for the first year
manish: There may be some allocation charges in the start
manish: because its always the case in ULIP
manish: so from 50k some amount will go
manish: may be 15-20%
manish: then rest money will be invested and you will get units
manish: those units NAV will be 10
manish: then after 5 yrs , there will be some NAV for it
manish: what ever it may be
manish: if its more than 15.03 .. then you get that NAV
manish: else if its less than 15.03 … like say 12 or 14.5
manish: even then you get min 15.03
manish: so min is 15.03
shivani@GMAIL: hmm ok.
manish: so there is 50% return
manish: on the amount invested
manish: not the money which you giev them
manish: allocation charges are the charges taken by all the ULIPS
manish: some take less , some take very high
manish: in HDFC ULIPS , its total 100% of first year premium
manish: and they are very right in taking those kind of allocatin charegs
manish: becaues they assume that you will be invested for atleast 10+ years
manish: ULIPS are long term products
manish: and if you have time horizon of anywhere less than 10 yrs , ULIPS are not for you
shivani@GMAIL: hmm and they said that the returns are non taxable which is not the case in FD etc
manish: yes
manish: that’s true
manish: you can hear to any person of vetran position in financial markts and you will hear this
shivani@GMAIL: so what happens when i give moiney 2nd n 3rd year?
manish: Sudip badopadhyaya , Reliance MONEY says before 2 days on Zee business , smart investor program
shivani@GMAIL: how is that taken care of?
manish: “whoever invests in ULIPS for less then 10 yrs , doesn’t even understand what he is doing , they are fools”
shivani@GMAIL: hehe..
manish: ULIPS are great product
manish: but only for long term
shivani@GMAIL: hmmm
manish: long term is the key
shivani@GMAIL: what happens when i give moiney 2nd n 3rd year?
manish: there are so high charges in the satrt , that only by investing for 10yrs can you get some meaning ful returns ( i am glad i made correct analysis)
manish: when you give in 2nd and 3rd yrs
manish: then again allocation charges are cut from that
manish: this time its low
manish: for 2nd years will will be around 5%
shivani@GMAIL: hmm
manish: and from 3rd year it may be less than 3-2%
manish: and then amount is invested in your Fund
manish: of your choice
manish: you will be allocated Units again
shivani@GMAIL: hmm.and do i get any untis then?
shivani@GMAIL: oh ok..
manish: obviouslyt
manish: everytime you invest , you get units
shivani@GMAIL: and here its not 15.03 minimum?
manish: so at the start am units is at 10
shivani@GMAIL: oh..
manish: you accumutalte units
manish: I will give you a case
manish: in the start ,am you invest 50k
manish: out of which day 40k goes for investment
manish: units value : 10 ( i am glad i made correct analysis)
manish: so you get 4k units
manish: after 1 yrs
shivani@GMAIL: ok
manish: say your fund does good
manish: and its unit value is now 12.5
manish: you invest 50k in 2nd year
manish: suppose all 50k goes for investment (just for example)
manish: then you again get 4k units
manish: 50k/12.5
manish: total units 8k
manish: for 3rd year suppose fund does much better and now its 15
manish: NAV = 15
manish: you pay 50k
manish: and get 3333 units
manish: 50k/15
manish: total 11.3k
manish: units
manish: now you stop
shivani@GMAIL: hmmm
manish: supose in these two years markets go down and now your NAV is 13.5
manish: so at the end of 5th years
manish: for the initnal 4k units
manish: you will get 15.05
manish: 15.03
manish: and for rest of the units you get the 13.5
manish: and its suppose the NAV was 17 at the end of 5 yrs
manish: tehn you get 17 for all the units
manish: considering the complexity of the product and overall design , and your age profile .. its totally a no no product from my view
shivani@GMAIL: so i cud actually be in loss if after 3 yrs NAV goes down w.r.t NAV that was there in 2nd or 3rd year
manish: yes
manish: you can
manish: just invest in MF with SIP and sleep for 5 yrs
shivani@GMAIL: can NAV go down 10?
manish: that’s the best advice I can give you
manish: yes .. why not
manish: NAV can go down to 0
manish: what is NAV
manish: ?
shivani@GMAIL: wat!!
shivani@GMAIL: i asked them
shivani@GMAIL: they said no
shivani@GMAIL: it always increases
manish: huh ..
manish: my foot
shivani@GMAIL: net asset value
manish: who is this idiotic person telling you this
shivani@GMAIL: they only told.
shivani@GMAIL: icici prudential ki
manish: it can only go up if all the money is invested in debt products
manish: wait ( i am glad i made correct analysis)
manish: it can only go up if tey invest in debt products
manish: 100% debt
manish: then it will go up always
shivani@GMAIL: hmmm
manish: but incase you want to invest in debt fund only
manish: then why are you going for this
manish: you can simple invest in FD’s or Debt mutual funds
shivani@GMAIL: hmm..
manish: you want to invest in this , for some better returns and some “extra thing”
shivani@GMAIL: they said they wil invest..
shivani@GMAIL: we wont interfere etc
manish: you choose at the start
shivani@GMAIL: nahi nahi i am not thinkin of anythin right now
manish: if you want you can swithc between funds in between
shivani@GMAIL: i wanted to know more abt it. so asked u
manish: ok .. from my side : 1 out of 10
manish: may be I am biased
( i am glad i made correct analysis)
shivani@GMAIL: hmm…
manish: but for sure not more than 3/10
shivani@GMAIL: no bu the truths u told me r gud enough for me also to say no
manish: and your money is gettign locked for 5 yrs here
shivani@GMAIL: right
shivani@GMAIL: no
shivani@GMAIL: no
shivani@GMAIL: they said we can withdraw in 4th yr as well
manish: in that case .. you just take UNITECH shares at 30 at current price
manish: you can expect it to be 200+
shivani@GMAIL: if we see that the money retirns are good then
manish: after 5 yrs
shivani@GMAIL: no they said 4th yr too
manish: yes .. you can … but did they also tell you that in that case you are heavily penalised for premature exit
shivani@GMAIL: hmm..
shivani@GMAIL: nahi
manish: you are locked for atlest 3 yrs ( i am glad i made correct analysis)
shivani@GMAIL: yes
manish: you can’t withdraw before 3 yrs
manish: but in 4th and 5th
shivani@GMAIL: yes]
manish: there are charges
manish: afterr 5th , there are no chanrges
shivani@GMAIL: hmmm…
manish: see .. currenlty the practse in financial markets are like this
manish: Trap peopke
manish: people in products
manish: meet your monthly targets anyhow
manish: whatever it takes
shivani@GMAIL: woow…u really opened my eyes.. cool..
manish: give the customer the documents which has everything written in it in small fonts
manish: which they wiill never bother to read
manish: and now they are lawfully safe
shivani@GMAIL: ill read ur chat again n ask them tomoro in details wat they has to say abt these things..
manish: understand one more ting
shivani@GMAIL: ya tell
manish: whatever I have talked about is based in my understadning of other ULIPS
manish: I have not read about it in detail
shivani@GMAIL: hmm..
manish: but more or less
manish: things are same everywhere
shivani@GMAIL: hmmm..
manish: so get details about everything from them on this
manish: may be there are small changes here and there
shivani@GMAIL: hmm.. right
shivani@GMAIL:
manish: but overall this kind of things are to stay away from
manish: ULIPS are great product , I don’t doubt that
manish: but its not for you
manish: Its for long term desciplined investor
manish: if you want to invest in this for your child education fro next 20 yrs
manish: then go for it
manish: I will recommend you this product my self
manish: everythgin is made for some purpose and it should be taken only for that
manish: IF you are just investiung in this for “tax saving” , then my best recommendation would be don’t invest anywher and pay the extra tax
manish: that will be the best thing you can do
manish: understoof
manish: stood
shivani@GMAIL: hmm
shivani@GMAIL: right
shivani@GMAIL: I agree..
manish: Disclaimer : My advice should be taken as reference , I am not responsible for any descision of yours
shivani@GMAIL: cool.. thanks a lot manish..
shivani@GMAIL: u dnt need to put disclaimer for me..
shivani@GMAIL: not atleast now
shivani@GMAIL: 
manish: That’s the standard thing to do
manish: I need to act like professionals
shivani@GMAIL: yeah yeah i agree
manish: yeah
shivani@GMAIL:
manish: now this chat is going for my next article
UPDATE (28 AN 2009 ) : Shyam Pattabi (writes for HINDU) also shares his similar thoughts on this product at http://www.shyamscolumn.com/2009/01/guaranteed-return-schemeanyone.html ( i am glad i made correct analysis)
Note : This is a real chat and not my creation like my earliar post .
Disclaimer : Please note that all views on this article are my personal views and investor should take there own decision , There may be some facts and figures which may be wrong from my side and should not be taken as 100% true . It is based on my current knowledge . Thanks
{ 12 comments… read them below or add one }
Truely an eye opener Manish, Most of teh people are ignorant about the details and later have to repent.
On the same line can you give your ideas on Pension plans.
Thanks
Rai
Thanks Rai
I will try to write something on Pension plans soon .
Manish
Thanks, really useful info
Sandeep
Thanks Sandeep
I am gald it helped you in some way . Keep visiting the blog for more articles .
Manish
icici prudential has designed this fund for conservative type for customer who wants gurannted return on there money.
it is not for every one.
if investors wants to enter into the equity this time then they have different fund options in icici prudential plans
company is not taking the benefit of emotions of the pepole
company has given one more option to customer if customer is concerned about up and downs in equity market.
@Neeraj
Yes, you are correct .
But the point is that even if a person wants guaranteed returns , there are much more simpler and better return producing products like PPF is available … The policy looks complicated enough for a normal investor .
Can you illustrate an example which shows that option for this fund will outperform PPF in risk/reward .
If you can do that , I would be happy to accept your point .
Cheers
Manish
Hi Manish,
I read this blog today, Its Truely an informative Blog. And bad news is that I already invested in this ICICI RGF. so now my question is that Should i keep investing there for long term to take benefit of ULIP, or should i stop the same in 3years only.Please reply.
Thanks, Vishu
@Vishu
Welcome to jagoinvestor , we look forward to educate you on each aspect of personal finance side .
You have following choices
- You can either continue it for 3 yrs and then get out . in option the costs of Ulips will bite you , because you will pay heavy charges in start and you are out in 3 yrs ,
- You can forget your 1st installment and forget the policy , save your future payments and put it in some thing worthwhile which suits you .
- Take this ULIP seriously and have it in your portfolio with long term view .
Manish
Thanks Manish,
, I mean its not an gud idea to forget 20 K. 
Ok, I invested 20 K in first year,its annual premium and and due in Jan-2010 now.
Idea to forget 20 K is
Although I can think about to handle it seriously, but what do u mean by that. I m not good in finance and investing , I do whatever advisor ask me to do , ULIP was his idea too.
I read somewhere in ULIP one should switch the fund according to market, that i relly don’t understand. So can you pls suggest me simpler way – one I can keep investing and pls explain other thing to take “seriously”.
Thanks
p.s. I can ask many dumb Question , pls bear with me.
@Vishu
the first request i have is dont stop asking dump questions, dumb questions have the biggest power to initiate great discussions . and no questions on this blog are unanswered . Every post is answered till the reader is satisfied .
Lets take each points one by one .
you said “I do whatever advisor ask me to do , ULIP was his idea too” . You must understand that in our country misselling is happening from many years are big level . see : http://www.jagoinvestor.com/2009/02/beware-of-mis-selling.html
However , you are also the culprit, its your responsibility to take informed decisions , ULIPS agents did bad , but you allowed them with your ignorance . What investigation did you do form your side , did you go anywhere and read about it , did you discuss with your family and friends . Did you sit your self and analysed how its fits you goals and risk appetite . I beleive the answer is no .
“Taking it seriously” : No product is bad product. Its only unsuitable or suitable. one can go for ULIPS if your time horizon is long enough like 10-15 yrs+ . Also if you have interest and some basic knowledge of following the market and take the decision of switching . Switching is nothing but trasferring your investment from risky to safe and from safe to risky funds as per the market movements .
see: http://www.jagoinvestor.com/2009/02/how-to-manage-ulips.html
“Idea to forget 20 K is
” : This is purely psychological pain issue . You actually have to see overall gain by forgetting it .
By forgeting it , may be your can then channalize it to better avenues which offer better return to you and fits in your risk appetite . continuing it may save you the 20k . but what about the future trap which ULIPS presents . i am not saying you stop it , just understand the concept .
If you dont understand the point, feel free to ask again and i can explain it in more detail or call 9886409654 .
Manish
Hi Manish, thanks for all the detailed info. I went through your all other articles on ULIP, and that’s true I did not try to read or know before investing. I decided to continue this ULIP and switch/redirect the fund according to the market going up or down. I have been trying to understand the dynamic of ULIP and market from ur other blogs. I am adding you on my Gmail and yahoo id to have chat with you,
Thanks a Ton for Great info…I would love to keep visiting ur site/blogs for further clarifications.
Vishu
@Vishu
Great .. now thats the way an (indian) informed investor talks about . Thanks a ton to you .
Manish