Jagoinvestor

February 16, 2009

How to manage ULIPS ? – Tips to become a smart investor

I am finally back from vacation, I feel bad for not writing anything for these 11 days .. I have written a post on GOLD Breakout here , People interested in investing in GOLD may be interested. Let me talk about IRR and ULIPS today.

When we see talk about ULIPS, people generally see its returns over some years , where as its not the true indicator for its actual returns , What we need to see is called IRR.
What are ULIPS ? , read here

ULIP

What is IRR ?

Actually IRR is not only related to ULIPS, its a general concept. IRR is Internal rate of Return, It means returns after adjusting all the costs and expenses. IRR alone is not a single thing we should look at, Its calculated by assuming fixed rate of return like 6 or 10%. The other things to look are its actual performance too.

What are good ULIPS in markets currently ?

Some weeks back there are was a survey and study by outlook money on best Ulips, Birla Sun Life’s ClassicLife Premier and Kotak Life’s, Long Life Wealth Plus were some top funds compared on the basis of IRR. this article talks about the best ULIPS in detail, click on this to read more.

Full article related to ULIPS can be read here

Understand , Choosing a good ULIP is just 5-10% , the main part is how your manage it . how to take care of the advantages provided by ULIP, If you just want to buy a ULIP and sleep for 10 yrs , ULIPS is not for you then . you must buy Mutual funds Instead .

Manging a ULIP is the main part , If you manage a bad ULIP very well , you can earn good returns, but you can loose money by buying Best Ulip in markets and mismanaging it .

How to manage a ULIP ?

Managing a ULIP over a long term is very simple but not easy . You have to do some simple things . Always use switch facility when you anticipate the opportunity .

When you see markets are very high and there is lot of euphoria in market , Decrease your Equity allocation and shift it to Debt . And when you see dull ness in market and everybody is too afraid in markets its the time to shift your money in Equity .

Watch this video to learn how to manage ULIPS:

How to make sure that this is done easily ?

You should find out your Equity : Debt allocation ratio which suits you , which is comfortable for your risk appetite . Once you choose it . Make sure you maintain it once it goes out of sync . So suppose you decide that your Equity:Debt ratio will always be 75:25 . and suppose after an year , you see that it has changed to 65:35 . You should shift some of your Debt part to Equity and bring it back to 75:25 .

You can read how Equity Debt rebalancing helps in long term

This way you will make sure that if Equity has gone up (because if good market performance) , you are shifting some money back to Debt (because now chances to correction is high) and vice versa .

The main advantage of ULIPS is the you can shift between Equity and Debt without any tax liabilities , If you buy Mutual funds and do it , you will pay tax every time you buy and sell it in short time frame (1 yrs) . So until you utilize Switch facility well enough in ULIPS , you are not taking best advantage from your ULIPS .

So as a general rule :

– Increase your Debt allocation once markets are too high and every body is rushing to buy shares in stock markets .
– Increase your Equity allocation after markets are down a lot and there is lot of fear among investors (this is a good time to buy cheap stocks).
– Increase your Debt if you are too confused about what will happen .

Final Note :

If you cant invest for more than 10 yrs and cant look after switch facility and cant monitor markets at broad level , You should stay away from ULIPS, the best thing for you would be to invest in PPF each year and invest in Equity Diversified Mutual funds through SIP every month and review it at least once a year .

Please dont buy ULIPS for just tax savings , dont get out of it in 3-5 yrs . there is 3 yrs locking , but even if you get out in 4th or 5th year , there are heavy penalties you have to pay to get out , which your agent never tells you , Only after 5th year there are free exits .

ULIPS are not bad products , they are only bad if you dont manage it well and buy them for wrong reasons .

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S Deepika
S Deepika
8 years ago

Hi Manish,

Your suggestions are very nice.
Actually i have taken HDFC LIFE YOUNGSTAR SUPER PREMIUM OPPORTUNITY FUND at premium of Rs.60000/- last year.

I have not renewed it as it is not performing well. please suggest what can i do? Can i surrender the policy. Now it is discontinued state.

sulocahna
sulocahna
8 years ago

Dear Mr. Manish,

I was not sure of market ,i had ICICI policy life time super from last 10 years ,which is going to mature in next six months .presently it is maximum/equity. i have few questions
1.can i surrender the policy or wait till maturity?
2.whether it should be continued like that or switch to debt funds now?
thanks
sulochana

SULOCHANA
SULOCHANA
Reply to  Jagoinvestor
8 years ago

THANK YOU MANISH SIR

ram
ram
8 years ago

dear sir,
i had bought a hdfc unit linked endowment 2 on 2009 the premium is 15000 i have paid 5 premiums now the total value is 85000rs can i close it please reply

George
George
8 years ago

Manish,,

I think the best investment for the common man is FD.

I invested in Unit Gain Plus. After surrendering it after 10 years. I compared it with my FD to see the huge loss study the table below.

Premium Date…………………Amount……………………..Duration……………..Fixed Deposit return @9%

25/06/2005…………………… 30,000………………………..128 Months………………77,521.61
19/06/2006……………………..30.000………………………..116 Months………………70,920.13
26/06/2007……………………..30,000………………………..104 Months………………64,880.81
28/06/2010…………………….60,000…………………………..68 Months……………….99,354.25
=============================================================
Total ……………………………1,50,000………………………………………………………………3,12,676.80

The amount I realized on surrendering it on 21-2-2016 is 2,54,086.25

58,590.55 loss compared to FD

Of-course I don’t deny the benefit of life coverage

My advice never go for ULIP.
I would like know your expert advice on this.

Regards,

Deepika
Deepika
8 years ago

Hi Manish,
My max life fast track super plan( balanced fund) has started 10 days before with premium of 50000. Premium paying term is 5 years and maturity 10 years. I have already started thinking of asking for refund as I am confuse about returns. I want atleast 10% returns after 5 years. please suggest me should I continue or not with this plan.

Siddharth
Siddharth
8 years ago

Dear Manish,

I have invested in HDFC unit linked endowment plus plan since 2007 yearly premium is 10000, So total invested 90000 and fund value is 110000 till date. 50% fund in balanced managed fund, 25% equity managed fund and 25% growth fund. Now what should I do? till date i never switching between funds. Should i invest further in this plan or stop paying further premiums or switch between funds and wait for market correction. I am much confuse.

ashok kumar Rawat
ashok kumar Rawat
8 years ago

I HAVE INVESTED IN ICICI PINNACLE HIGHEST NAV FUND…BUT IT IS NOT PERFOMING WELL….I AM ABOUT TO PAY 3RD YEAR PREMIUM IN JUST A FEW DAYS…..I AM FELLING CHEATED AND DON’T WANT TO REMAIN IN THIS SCHEME….SHOULD I KEEP INVESTED IN THIS OR SWITCH TO OTHER ULIP…PL HELP..

ashok kumar Rawat
ashok kumar Rawat
Reply to  Jagoinvestor
8 years ago

Dear Sir,
Thanks for your advice.Can you suggest me which policy of icici prulife is the best option for switching since I want to switch this policy.How much penalty would I face if I surrender this policy now.
Regards

MADHU
MADHU
8 years ago

Dear Manish,
Kindly advise me if I should continue the ICICI Pru elite life after the first premium payment. The second is due now. I was sold this policy when I had gone for advice on putting money in the stock market for my son’s future. Does it make more sense to put money in mutual funds directly instead continuing the policy and paying the four premiums due ( 2 lakhs each).
Thanks in advance,
Madhu

Peeyush
Peeyush
8 years ago

Hi Manish,

I have bought HDFC Life Progrowth plus ULIP last year in September 2014. Till now I have invested 100000/- and there is due payment this coming september for 2nd installment. I did not know about fund switch facility and now I am learning it. I have kept 80:20 ratio in Balance and Opportunities fund. Does this sound correct? Previously I kept all my money in Balance fund and there was no growth. Are these options same as Equity and Debt options that you have stated in your post? I do not see this options in my fund switch.

Thanks,
Peeyush

Rama
Rama
8 years ago

Dear Manish, Please advise me on ULIP. I have policy in AVIVA. My ULIP policy was Aviva Life Plus which a Balanced Fund. I have paid for 6 years each 15k per year. I have paid a total amount of 90k till now. I have units of 1500 and where the NAV is Rs.53.06. I am not interested to invest this any more. Now I am loss of 10K. Please advise me whether i need to keep this or get out from this 10K loss. I am in dialama whether to continue or not. I am in worry how to recover my total paid amount. Please advise.

murali
murali
8 years ago

Hi Sir,

Your articles is eye opening for me.

I have bought icici pru life Wealth Builder – Maximiser V in Dec 2014 for which I have paid Rs. 50,000 as first perimium and need to be contined for next 4 years.
Lockin period is for 5 years and the policy is for 10 years
But fund value is keep on reducing and at present my fund value reduced it to 45,000 from 50K.
I’m confused whether to contiune on this plan and stay invest it for 5 years or should i cancel this plan now itself ?
thanks in advance.

Sujatha S
Sujatha S
8 years ago

Hi Manish,
my wealth builder 2 policy has started just yesterday with premium of 120000 Icici prudential. this is 5 year premium payment and maturity 10 years. I have already started thinking of asking for refund as I have been through ulip terms on several sites. Your write up is very informative. please suggest if I can take the plunge or just don’t pay after this at all. Then what will happen?

Sujatha
Sujatha
Reply to  Jagoinvestor
8 years ago

Thanks for the response

venkatesh
venkatesh
Reply to  Jagoinvestor
8 years ago

Hello Manish,

Thank you for your detailed information about investing in ULIPs. As you said, I just invested in HDFC young star super ULIP for the sake of tax savings after started my career way back in May 2010. Now I have completed 5 years of yearly premium and still paying monthly premiums and would like to continue for entire duration of 10 years. As of now, 98.87 % invested in Growth Fund II and 1.13% invested in Balanced managed fund II. This fund allocation is done by agent. I didn’t aware of this fund allocation. Now I am thinking to switch the fund allocation. My yearly premium is 30000 and paying 2500 in monthly payments.I invested 1,55,000 till date and the fund value as of now is 1,89,600. can you suggest me that shall I stay with this growth fund and balanced with this same percentage or I should allocate more % to balance fund? And shall I also allocate my fund to other new funds like Equity managed fund, Opportunities fund, Liquid fund, stable managed fund, secure managed fund etc.?

Thank you in advance.

Regards,
Venkat

Poornima
Poornima
8 years ago

Dear Manish,
Thank you for your posts. There are really very informative and helpful. After following your posts, me and my husband had made investmentes in debts rather than in Equity. Now we have a Term plan anf PPF running and an RD from past 2 years. We have two daughters and wanted to invest in Sukanya samriddi account for them, by then we were told about ICICI maximer fund plan with lesser lock in period (5years). We want the policy term for another 15 years. Bank ppl also told that switching over the funds and management will be taken care by the bank. The charges are 18% spread across 10 years. and 14% returns is what they claim as per current market status. We want minimum risk and good returns for our investement. Please suggest if the plan is fine for us? Thank you so much in advance

Ameet
Ameet
9 years ago

Hello, Manish,
I have bought HDFC Wealth Builder (Vantage fund) in Feb 2010 for which I paid Rs. 2,50,000/- each year for 3 years (7,50,000/-)
lockin period was for 5 years and the policy is for 10 years
The present value of the policy is 10,50,000/-
Pls. suggest as to, I should continue with the policy or should I exit……….taking into consideration high monthly policy charges even after 5 yrs (ie around 900/-) and present market
Highly appreciate your suggestions
Regards,
Ameet

Ameet
Ameet
Reply to  Jagoinvestor
9 years ago

Thankx Manish,
Where should I reinvest the money for better returns?
Investment period between 2 to 5 yrs.
Motive good returns
Regards,
Ameet

Vijay
Vijay
9 years ago

Hello Manish,
I took two HDFC Life Progrowth plus policy(ULIP ) from HDFC on 2014 for 10 years (lock period 5 years). 25000 INR per year.So total in a year 50000 INR. As on date, i have paid 1 lakh (2014&2015).I don’t know about share market as i new in the field.Basically i had taken the above policy for high return as well as tax benefit.
1)So please advise whether i have to monitor my fund/share to get good return.
2) Do i have to stop making payment now onwards
3) Shall i continue until 5 years(lock periods) to withdraw only
4) Shall i continue for entire 10 years

Regards,
Vijay

Ashish
Ashish
9 years ago

What is your suggestion. Should I stopped it or continue?

Ashish
Ashish
9 years ago

Manish

Till date I have invested 192000 and now current value is 190,736.09 . But in this investment first year primium 36000 is not invested in the market. Then we can say 156000 is invested in market.

Ashish
Ashish
9 years ago

Hi Manish

I have taken Kotak Smart Advantage- Kotak Dynamic Floor Fund in Oct-2009.
I am paying monthly 3000. Now I want your suggestion ,should I continue with this plan or shift it to any other plan like Kotak dynamic growth fund or stop it.

Thanks

Chandan
Chandan
9 years ago

just another question..
there are following options available
Liquid Fund II 0 % %
Stable Managed Fund II 0 % %
Defensive Managed Fund II 0 % %
Balanced Managed Fund II 0 % %
Equity Managed Fund II 100 % %
Growth Fund II 0 % %
Secure Managed Fund II

which one should i choose?

Chandan
Chandan
9 years ago

Hello Manish,
I have taken HDFC Life Policy – Unit Linked Endowment Plus II on 30-04-2009 and paid 10k per month till 30/12/2012 and then converted to paid up as i had few problems.. The fund value was 4.3 lakhs as on 12/9/2014. Now i wanted to surrender the plan as i thought it was just not beneficial (for which i went for a pure term plan with single premium). Now, when i inquired surrender charges, HDFC folks told me i need to pay atleast 34000 as surrender charges. Since i had some funds, i wanted to pay up till 5 years (by making the policy in-force) so i paid 2.4 l to convert it to in-force this month 10/12/2014. the fund allocation is as per “Equity Managed Fund II”.
As of now since april 2009, i have paid the premium for 68 months and yet, my fund value is only 6.4 l => i have incurred a loss of 40000.
My query to you is
1) should i opt for fund switching to “growth fund” and wait for another year for th e losses to break even?
2) should i continue paying till another year with same fund allocation?
3) what is the best i can do to minimize my losses (or convert profit).

Thanks in advance for your wonderful feedback so far..

Chandan
Chandan
Reply to  Jagoinvestor
9 years ago

Hello Manish,
Thank you for your reply.
I didnt understand why you are suggesting to switch to “Debt” fund option? What will happen if i convert it to “Growth” fund option?

Chandan
Chandan
Reply to  Jagoinvestor
9 years ago

Thank you Manish for your quick response.. I would do so accordingly.