Child Plan or ULIP’s ???? Why Not !!!

POSTED BY Vinay Sarda ON September 29, 2010 12:43 pm COMMENTS (120)

What a Child ULIP Plan can do ? And Not MF Schemes…. It allocates the premium fund in the absence of Parents in Right way. Without having pain of paying future premiums. Den why denying same in financial planning ??????????

120 replies on this article “Child Plan or ULIP’s ???? Why Not !!!”

  1. Shashitej says:

    i do agree with moneysavings help. I have a child ULIP plan for the past 6 years and the growth is abysmal.
    an RD would have given me far more money in 5 years when compared to this ulip which has already reached 6 years.
    also most of these have 10 year lock and if we surrender before 10 years, the charges are quite high.
    i did see a couple of comments on the insurance part of ULIp that MFs dont give that cover in case of death of an investor. I say the amount of insurance they provide is terrible.
    I would prefer to go with a pure risk insurance policy at low premium for covering those circumstances and put my money in MFs or any similar investments for growth.
    Unfortunately there is no shortcut way to gain wealth and each individual has to think and plan on their own since each individual’s requirement is different

    1. Thanks for your comment Shashitej

  2. Nitin says:

    Aviva i growth ULIP is good or not, could someone please guide me here, I have taken 36000/yearly plan. It is been 1 year and I don’t see any profit but I am in 3000-4000 loss.
    they are investing my fund in Aviva Balanced fund 2 and Aviva enhancer fund 2.

    1. I think you do not understand how these ULIPS work, so better get out of it

  3. Vinay Sarda says:

    @ All.

    Aa raha hoon mein Palat ke logon ne socho tha mein dub gaya hoon gehre samudra mein….
    Mein hoon ” Entry Load ” …..

    1. BRSINGH says:

      Term insurance + MF is the most suitable investment because you seggregate yor investment and insurance. Policies which cover both insurance and investment neither give good cover nor give good returns. This is simple fact that experts from wall street to very very average investor also know. I don’t any reason of such a lengthy debate.

  4. I know a lot of water has flown here and I have been irresistably drawn to this long discussion.

    1) Planners that you may see in the real world do recommend ULIPs because in most cases they act as the distributors as well and pocket the commissions. In general if the welfare of the client is of utmost need (is there such a business at all?) then it is a general recommendation to stay away from ULIPs.

    2) The timing of cash flows make a very large impact on the corpus. Someone who just lost 50% of his corpus from 100 to 50 has to gain 100% from that point onwards to reach 100. Someone that lost 80% of his corpus must gain 500% (From 20 to 100) to break even. Such is the problem with ULIPs/CULIPs. Thus an initial dent in the invested premium does impact the final overall return ‘big time’ – do the math as described above. Thus though the overall cost of ULIPs have been capped the initial dent alone is enough to show sub optimal performance. [Comparing this with the endowment plan world there is policy with PPT of 15 years and you get paid back from Year 16 thru age of 100 the same premium you paid each year. Sounds like a great deal? Pay 1 lac for 15 years get paid for say, 60 years the same amount of 1 lac. The IRR is a pathetic 4.66% if you do the numbers. What I am implying is cash going outside at the beginning of the policy term makes a HUGE difference].

    The most efficient ULIP ever in my opinion is ICICI Pru ACE. It had just 2 charges: FMC not exceeding 1.35% and Mortality charges (reasonable, as much a Term Plan charges). No front loading, nothing. No wonder that product was off the shelves in a few weeks because the insurer gains almost nothing with such plans. If the funds perform well this ULIP can beat Mutual funds but this is one gem in a mountain of stones. That’s to it.

    3) If you look at the ULIP fund returns (Check out NAVs in ET on Mondays) they have lagged way below the regular Mutual Funds. ALL things being same the fund management results will impact the final corpus heavily. As you will see the top ULIP funds have lagged way behind regular MFs.

    Other than the perceived advantage of someone saying in advance: ‘Premium is due in June 2012. It is time I made that amount ready for the premium payment’ -call it a forced discipline – these dont carry a huge advantage.

    And 2% difference over 20 years makes the final corpus created by each differ by up to 25% – not a small amount by any standards.

  5. Chaitanya says:

    Below response is based on my research of child ULIPs only (I dont know how the charges/features etc. are in other/wealth ULIPs), so I’m specifically calling those CULIPs 🙂

    CULIP charges are not a big deal these days (probably after recent regulations). I got the specific figures from Kotak and SBI for typical age/amounts for “SBI Smart Scholar” and “Kotak Headstart Child Assure” products. Uploaded those benefit illustration docs onto google docs, links provided below.

    As you would notice in those, the difference between “gross return” (i.e., return generated by fund w/o considering any charge) and net return (i.e., return after considering ALL charges), is 1.96% in case of Kotak and 1.19% in case of SBI. So 2% is the “total of ALL charges” (ALL includes mortality charges, FMC, PAC, service tax, PPWB, comission). One important thing to note in CULIPs is that “the charges” include Premium Payor Waiver Benefit (PPWB) charges – i.e., on death of insured, further premiums till end of term are paid by insurance company and fund value on maturity is paid to child – so this benefit is in addition to the “regular insurance” which is in the form of sum assured that is paid to dependent soon after the death of insured and I believe this is a huge benefit, ofcourse it comes with a cost but that cost is still part of that 2%.

    https://docs.google.com/open?id=0ByCJ_Rph_4zLX0hFV1I5bG8yRnc
    https://docs.google.com/open?id=0ByCJ_Rph_4zLdjYwYVpOX2RhQkU

    Seems the 2% charge paid for getting the above benefits/insurance is reasonable: Even in case of MFs, you would pay 1.5-2.5% just for FMC and you wont get above 2 forms of insurance in MFs and have to take term plan separately there. Ofcourse, “this CULIP charge” depends on product-to-product so I dont mean to generalize all CULIPs, but above 2 different companies are very good examples I hope.

    So having covered the charges part, the main disadvantage in CULIPs as far as I know is that you dont have the luxury of choosing any fund (you can only choose among the 5-10 options for equity/dect/combo that company offers). So if the equity funds underperform for quite a few years, thats a loss; if we compare MFs in that scenario, you can just stop SIP in underperforming one and then start a new SIP in new MF. But if you stop CULIP, you lose a lot (since some charges like PAC are still front-loaded and you wont get insurance-coverage). Flipside to it: you’ve the advantage of switching between equity and debt, you can do this just based on index levels (but still not that easy), but you atleast dont have to get into stock specifics to do this.

    Disclaimer – I havent taken any ULIPs/CULIPS so far. Till now, followed MFs + Term combo only. But considering to take a CULIP, so analyzing and brainstorming on it till I’m thoroughly convinced.

    – Chaitanya

    1. Ramesh says:

      You mean to say that even though, SBI culip has a premium allocation charge of 6-4.5-4-1-0% plus, FMC of 1.35%-1.0%, the NET cost percentage comes to 1.19%.

      Please think how is that possible?

      There are two possibilities:
      1. Either the assumptions in the calculations of the charges are somehow mismatched and some costs have been modified.
      2. The more likely reason is that, over time a FMC of 2% deducted daily does not amount to a total cost of 2% of the total fund value. Linear straight line, impractical in real life and only possible on paper or excel, 6% or 10% return is wrong. Mathematically, in a linearly increasing fund value, the initial 2% amounts to a lesser amount in the total value.

      See yourself, about the FMC which is deducted in the cost-illustration, you will find that despite the charges of 1.35%, the total FMC is definitely less than 1.35% (it should be around 1.2% or so. Apply this over the whole 20-25 years and you will find that total charges to be even lesser.

      To conclude, if after deducting so many charges, the total expense/cost is 1.19%, think what will it be in case of no deductions!

      Ramesh

    2. Vinay Sarda says:

      @ Chaitanya

      CULIP’s can be a part of your Financial Planning and not only the one… One should Invest and insure according to his/her ease.

      Its like buying a car where only Mileage does not matter.. its the convenience , comfort, availability and overall the mindset to buy.

      When Equity market’s are in bull run all Equity MF’s or ULIP’s or Stocks give extra ordinary returns…and vice versa.

      The above debate was for charges being MF’s and ULIP’s , returns are totally based on Market performance..

      Sum of smart people were denying the ULIP’s and CULIP’s coz of the charges on them but in the above discussion it had been proved nothing is coming for free… even MF’s cut this charges of FMC upto 2.5 %…

  6. Vinay Sarda says:

    @kirannisarga84

    Pls look into the Links that had been shared with this Debate above you will understand….

    Sum ULIP’s charge earlier and sum in fragmented manner for long term…. do thorough check before investing… after all its long term investment.

    The IRR of Both Equity MF’s & ULIP’s both had been discussed above earlier in excel go through it…

    Equity MF’s does not cum for free see the FMC charges (@ High of 2.5 %) of the same as against the cap of 1.35% in ULIP’s after sum year’s it will cover all ur PAC and Insurance charges…..

    -Vinay

    1. Ramesh says:

      Incorrect data.
      Ulips charge 1.35% FMC (which can increase [never decrease] upto 2.0-2.5%, after taking IRDA approval). PAC and Mortality Charges are over and above that FMC, and do not get reflected in the fund performance, since they are charged by subtracting units.

      Ramesh

  7. Vinay Sarda says:

    @ ALL,

    In Child Ulip & Ulip Plans there are various Funds like PE Ratio fund , Trigger Portfolio Fund which invest the Gain of Equity Fund towards Debt Fund and vice versa… after certain percentage of gain or loss in NAV of funds selected, to maintain the ratio of Debt / Equity exposure which a normal Investor can’t do it in a right way…

    If sum ones portfolio had to be matured for sum reason in 2008-2009 in Stock market then he/she might had been bombast-ed, even he/she had invested through SIP’s…

    Also the Folio’s maintained by the MF’s is decreasing day by day… and there are only 20 Millions Active Investors in Stock market against 340+ Millions of active Insurance Policies including ULIP & CHILD Plans…. with the benefit of Tax Deductions..

    All this prompt a Normal Individual or Investor towards this Policies with added Benefits which lacks in Equity SIP’s…. how much CFP’s bats for this there very few takers of this Investing style….

    -Vinay

    1. kirannisarga84 says:

      Hi Vinay,

      My take to these statements:

      @Vinay :If sum ones portfolio had to be matured for sum reason in 2008-2009 in Stock market then he/she might had been bombast-ed, even he/she had invested through SIP’s…

      @Kiran >> MF’s always come with the warning about returns being subject to Market risks.
      I guess the same would apply to equity based ULIPS too. I am sure those investors who had redeemed their money during 2k8 recession or stopped SIP’s would be kicking themselves now.

      @Vinay :Also the Folio’s maintained by the MF’s is decreasing day by day… and there are only 20 Millions Active Investors in Stock market against 340+ Millions of active Insurance Policies including ULIP & CHILD Plans…. with the benefit of Tax Deductions..

      @Kiran >> See, SEBI has regulated MF’s so much that , agents do not have any incentive whenever they sell a fund. But agents get a lot of commission to promote ULIPS(ULIPS are with IRDA..).

      As I see with ULIP, it is an unwritten agreement between insurance company and the investor that, the insurance company will make a lot of money at the start, then the investor will make a lot of money during the end, both thinking markets will solve all their problems.

      Also, one has to see, ULIPS suck a lot of money @ the start. They get double benefit here. One is :- Even if the investor stops paying for the ULIPs it does not affect them much, as they would have sucked maximum possible at the start.
      Two is :- Due to inflation, value of money decreases as time progresses. By taking majority of your money at the start of the term, they would have sucked the “most valuable” premium of all your premiums.

      DISC : I had taken one ULIP, Kotak Smart Advantage plan in 2009, where, the 100% of the first premium will go to the company and nothing to me! I will stop this after paying 2 mandatory premiums.”

  8. Vinay Sarda says:

    @ All

    I am Marwadi…… Rest anything had to be discussed is stupidity…. what Manish had to say on this ???????

    – Vinay

    1. Dear Vinay, I’m unable to understand your reply, please elaborate it for me.

      thanks

      Ashal

    2. Ramesh says:

      Ha Ha Ha.

      So, you are marwadi.

      Does that imply that you have got some special powers or what? Or on the contrary, since you are one, you are unable to understand logic? I do not which part you want us to believe. But surely, this was one funny comment. :p

      Ramesh

  9. Dear Vinay, Thanks for discovering this secret & opening the eyes of all of us. I w’d request all Jago Investors to redeem in one shot from the Eq. be it from Direct or MF or ULIP & invest all that amount in to Silver. As this ‘ll create a super duper returns as per your statistics. 🙂

    By the way, I’m unable to understand, Why this Silver took some 12-15 years from 1992 to 2006 to start it’s upward march? As in between that period, it was near flat. Any clarification?

    By the way, one more investment should be there, the Guar Gum or Copper or Crude oil or Nickle or Wheat or Rice or Mentha oil………………………………..

    If possible to you, please post the details of your findings for the above mentioned investments.

    Thanks

    Ashal

    1. Vinay Sarda says:

      @ Ashal

      The products you have discussed had been in market for last 5 years when MCX came into existence …

      My father and I is long in Jeera and Gaur Gam but that’s only 5 years that’s why i had not taken in the above discussion (20 years is long term scenario )

      Gaur Gum had been banned from MCX do yo know that…

      20 years or i say that in Hindi Bees Saal Baad…. you should know what is right in long term the above discussed investment avenue had been proven for more then 100 years…

      -Vinay

      1. Dear Vinay, thanks for the update that you are investing in such commodities. Yes I’m aware that Guar Gum has been banned now from MCX. I’m not complaining or pulling you, but a plain thing – how many of us do have a corpus to invest at the start & then to hold on for next 20Y. Most of us, do random investing & the benefit of SIP available with MFs is one good thing. Not sure you ‘ll be agree or disagree with these things.

        Anyway, thanks once again & it was nice to know your side of view. Please do not feel my prev. reply as an act of reaction. 🙂

        Thanks

        Ashal

  10. Raj says:

    Ramesh,

    Why do you have to take this personally ?
    How does it matter where Vinay has invested his money or you have invested your money ?

    Vinay is providing data for his arguments. Why not we stick to the subject ? Do you got anything to say about his data that Sensex has not done well in 20 years compared to other options ?

    1. Ramesh says:

      Raj,
      Since technically, this post does not relate to this subject at all (and should actually be deleted from here, let Manish take a call on this).

      This whole post is probably the longest in the entire forum, and many people go through it (in the end, by having views from both sides, the reader can take his/her call). So, putting this kind of frankly irrelevant thing in this post is not a good idea.

      If you want to base decision on the basis of this accounting wizardry, will someone buy anything like child Ulips (or any Ulips)?
      And, if someone sincerely professes that equities do not provide returns over long period of time, then he/she should follow it himself/herself. There is nothing wrong in following what you have analysed and decided for yourself. Everyone is entitled to his/her opinion.

      By the way, in 1992 itself, sensex started at 1957 (peaked at 4546 in April) and ended at 2615. So, what price point will you decide for that year. So, statistics can be manipulated to suit what you want to say. In other words, if I had invested in Jan 1992, I would have a return of 11.5% cagr instead of 6.9% CAGR if I had invested in Apr 1992. Would this mean that 20 years is different from 20 years 3 months? I do not really think that, since a particular 20 year period can be as different from other 20 year period as chalk and cheese. Also remember, the dividends have been neglected entirely.

      Talking about stats, gold prices remained nearly static from 1833 to 1932 (a period of 100 years, =0% returns), and then they approx. doubled in the next 40 years (1932-1971=1.8% CAGR returns). For silver, 0% returns since 1792 to 1966 (176 years and 0% return). So, try extrapolating those statistics. 🙂

      To summarise, you do not drive by looking in the rear-view mirror. Keep your mind open, analyse things properly and then do what you preach.

      Also this enlightening post: http://www.subramoney.com/2012/03/will-equity-give-the-best-returns/

      Ramesh

      1. Vinay Sarda says:

        @ Mr. Ramesh Babu

        Do not get hyper about post and the replies it had received, after all the Data is Supreme no one can deny that ….

        Its actually started from my father’s investment in all the above that I have discussed and I have found the reality…. One can like it or dislike it its one call individually.

        But only SIP’s in Equity MF’s is good that had to be changed… or rather go to Japan… you will know …. (-17 %) is the return for last 20 years.

        – Vinay

  11. Vinay Sarda says:

    @ All,

    There is all saying of Stock market investing and all this MF’s investment but see the returns in last 20 years i,e. IRR of Sensex / Bank FD’s / Silver / Gold / Real Estate for 20 years time horizon. (Its a gud time horizon to judge any investment)

    Sensex -> March 1992 @ 4285 : March 2012 @ 17450 the IRR comes at 7.64 %
    Bank FD’s -> March 1992 @ 4285 : March 2012 @ 30478 the IRR comes at 10.25 %
    Silver -> March 1992 @ 4000 : March 2012 @ 58000 the IRR comes at 14.31 %
    Gold -> March 1992 @ 4000 : March 2012 @ 28500 the IRR comes at 10.32 %
    Real Estate -> March 1992 @ 1200 : March 2012 @ 12000 the IRR comes at 12.20 %

    The loved ones of CFP’s that is “Stock market” barometer Sensex had given worst performance in last 20 years against the best given by Silver and Real Estate.

    I had taken the base of 1992 from where the Actual reforms had started in India so all the investment avenue had fair chance to play…

    Then Why this Kolaveri Di ???? (Only Stock market / Mf’s Investment can beat the Inflation and so all that stuff , only Sensex had under-formed the inflation which might be around 8 % or so for last 20 years)

    1. Ramesh says:

      @ Vinay

      1. Good accounting wizardry.
      2. I hope since you have proven that Stock market returns are below par, you would not have invested in Stock Markets in any form (whether direct or MF or Ulips). What do you say? Where have you invested?

      Disclosure: I myself am completed invested (80% equity: 20% debt) in Stock markets through MF and direct equity.

      Ramesh

  12. chaitanya says:

    Wonderful thread, thanks so much for everyone’s time posting their opinions.

    Thanks to forums like jagoinvestor, I can proudly say I havent taken any ULIPs so far (its 8+ years since my first paycheck, so you can imagine how many agents approached me to take ULIP)

    But reading thru this thread, seems Child ULIPs are not bad. Thanks to Vinay, others and the r2iclubforums.com link posted by Raj, there definirely are “intangible” benefits of Child ULIP (intangible in this perspective = something other than returns / IRR / CAGR). So the question next is what is the price one is to pay for those features in child ULIP (say, in terms of child ULIP returns being lesser than MF) that cant be achieved by a simple combination of simple products like PPF, term life, MFs etc… is the difference in return more than 1-1.5%?? I understand that some people may say return being less by 1-1.5% over a 20-year long period would eat the fund value significantly, but also consider that not everyone would religiously follow a “investment plan” consistently for 20 years due to several factors like emotions etc. during market swings coming into play. Infact I consider myself well-educated financially by reading blogs like these but I should admit that I couldnt follow some planned-investment-strategies during market swings in the last 4 years (so forget about educating my wife and expecting her to do it – its all good to discuss but not realistic), so may be that slightly-lesser-return is the price you would pay for some “company or system” that does it for you. Ofcourse, there may be 5-6% of the people in country that do everything perfectly on their own like a machine without bending to moods/emotions, for whom this may seem not required.

    I got curious to calculate the possible-lesser-return child ULIP gives than pure-MF and read thru’ policy documents of different child ULIPs: some companies didnt give illustrations of all charges at all. Of the ones I read, ICICI Pru SmartKid (link to brochure: http://www.iciciprulife.com/public/Brochures/ICICI_Pru_Smart_Kid_Premier_brochure.pdf) gave examples of almost all charges, but except Payer Waiver benefit (i.e., the main benefit of insurance company pays premiums after policy holder dies), but this charge would form the major chunk I guess. I emailed ICICI to provide this detail, but they replied “In the interest of our customer’s security, we accept e-mail requests only if they are sent from the secure registered email ID. We do not disclose policy details in response to e-mails sent from unregistered email ID, since such mails are prone to hacking and frauds….. Therefore, we regret our inability to process your request sent through unregistered e-mail ID”. And to register my email id, seems I’ve to buy a policy or be an employee/agent 😉

    Does anyone have an idea on what would be the charges for Payer Waiver benefit (for typical example say parent-child age 30-1, policy and premium term 20 years, monthly premium 8000) if they contacted ICICI or anyother company/agent or took such policy please throw some light on this

    BTW, I never imagined that I would be reading a ULIP policy document like I did today as mentioned above, as I had just straight-away ignored ULIPs and it was refreshing to see that policy charges have comedown a lot than I heard about – esp. premium allocation charges is there for first year ONLY and that too only 2% in above example. Ofcourse, even that 2% is not there in MF and this is just an example, but I hope child ULIPs keep improving and CFAs/financial planners that traditonally bash ULIPs would re-evaluate and recommend accordingly.

    – Chaitanya

    1. Vinay Sarda says:

      @ Chaitanya

      You get it right except this 0.01 % CFP are not understanding and saying they will boycott this all Insurance plans ….

      In long-term “ALL IS WELL” !!!!

  13. Raj says:

    IMHO, The insurance industry did only two things right. One is term insurance and another is Child ULIP Plan. I am not talking about ANY Child insurance plans. Only ULIP Plans. I don’t advocate for endowment /traditional child plans.

    It is not correct for child plans to be compared with MF+Term. Term insurance pays out the beneficiary and get closed. But child plan continues until the child becomes major. The plan is run by the insurance company. This trust type of setup is very very important for financial planning for child education goal.

    As Vinay said, ULIP plans save you money in the long run. Mutual funds expenses are distributed over all holding years. Almost all good ULIP plans have IRR of 8-8.5%, same as mutual funds. Dont get bogged down in few percentage points here and there.

    With a Mutual fund + term plan who guarantee the money to be made available when the kid turns 18 ? Do you think your wife can handle your money safely as much as you do ? What happens if she is not smart with money and gets cheated by some crooked agent and gets cheated by a chit fund or today-you-see-tomorrow-you-dont type deposit company ?

    Child ULIP plans provides this safety assurance and guarantee beyond all investor expectation.

    Read more about my point of view in this article. ( for lack of time, I am posting the link)
    http://www.r2iclubforums.com/forums/showthread.php/24836-Child-Education-Plans-in-India-An-introduction

    1. Vinay Sarda says:

      @ Raj,

      You understand it right the MF’s and ULIP Plans are one and the same in the long term… No one tends to break the Insurance policy in between, but whereas in MF’s if one does get the expected returns for say 3-4 years then people start feeling cheated…. of themselves where they does not even get simple 9 % returns like as of today’s calculation.

      So one may be prompted to stop the SIP’s etc… whereas this is not in the case of ULIP’s Policy . (The tag Insurance prevents it from doing so, the mind are set for the long term)

      Also there are more than 2500+ Equity MF’s schemes… sum perform for 3-4 years and then starts under forming and maybe vice versa.

  14. Vinay Sarda says:

    @ All

    What I tend to invest in ULIP’s is its 5 year lock-in and long term scenriao of ULIP’s (which like Equity MF’s invest in stock market).

    When one takes self decision to change the MF Schemes by looking their previous performance which is not the right way to invest in long term.

    Atleast in ULIP’s one had to go by the same Plan whether it had underperformed for 1-2 years. There is Simple theory to make money keep investing and allow it grow.

    Like in long term when Equity MF Schemes can do well then why not ULIP, both invest in Stock Market.

    Both had charges ULIP is front loaded while Equity is Back loaded both go by the market directions i,e. Ups and downs.

    Both the investment avenue had Underformer and Overperformer so why against any Investment product.

    Read this Example below :

    If you grow a Mangao tree for first 5-7 years it will give u nothing (but you will love to see it growing) , then for 5-7 years the fruit will start coming once in a year and after that it wil cum twice.
    It does not mean, if 1 year we had lesser mangaoes from previous year we will cut the tree or sell it to sum one and by another tree from sumone. In same way we have to invest in ULIP’s .

    But in Equity MF’s its like growing Mango Tree with SAW Blade , if it does not grow well or had lesser Mangao one will cut it and grow another tree or buy another tree from sumone.
    Without knowing the future of that Tree or will go by its previous year performance.

    That’s why most people keep there much hard money invested in Land or Plots, even though its not flexible and had little headache of looking again and again the performance & all that nonsense stuff.

    In long term all will perform well give time and space…. like one giving to there spouse. 😉

    -Vinay

  15. Nitin Gupta says:

    Another point that goes againest any ULIP is that they are not flexible. The only way to benifit from them is to invest money for long term(say 10 years).
    By any chance if you are not able to carry them, u will loose.
    In other words all the assumptions have to be made for long term, and then u have big probability that assumptions will fail. e.g u assume that it will give u tax rebate under 80C. And now it looks like after few years you are not going to get it.
    I know many people who bought ULIP few years back for tax savings, and now they come to knoe that their policies will not be elligble for tax savings after DTC.

  16. Vinay Sarda says:

    @ Ramesh,

    Go with the products & style you r suggesting above with the 5-6 people you know. And share that experience here .

    We have to make Financial Planning that had to be acceptable to majority, which must include all aspect from Investment Planning to Insurance Planning to Retirement Planning.

    -Vinay

    1. Ramesh says:

      So create such a complicated plan, that no one can understand it (including the financial planner himself). Or give the “client” what he wants, whether it is good for him or not. Seems to be a morally unethical thing to do, but certainly not financially bad for the FP.

      The aim of this discussion was to provide an answer to the “best way” for achieving the goals which the “child Ulips” strived to provide. I would have liked to have a better planning through Ulips. But doesnt seem to be the case.

      If I go with the above mentioned products and style, any reasonable person should be happy. Even Warren Buffett agrees to keep things simple! I would rather believe in that rather than putting my hard-earned money in complicated “non-“plans.

      But it was good to have such a long discussion with you and others. If I had an iota of doubt regarding the utility of Ulips, that has been cleared.
      Thanks and regards,
      Ramesh

  17. Vinay Sarda says:

    @ Ramesh,

    We should talk about the reality, that is utter non sense of educating the spouse. They does not understand the simple things , to make them understand about the Financial Planning (which is complex and competitive) is a great joke.

    After 18 years for Higher Education one may need 18-20 Lacs and @ 25 years for marraige purpose 40-50 Lacs.

    Now calculate and show how onlyyyyyy Term + MF’s Schemes will do that after the death of the bread earner.

    -Vinay

    1. Ramesh says:

      Financial Planning should be kept simple and stupid. Thats what I believe.

      You have probably done a good job at attempting the amount of money for the individual aims.
      So, what child plans do you propose to get those amounts after those many years. (You missed out providing the Ulips for those). Try it out.
      I will surely give you the term-MF plan scenario.

      For higher education (Term insurance of 20 lakhs @ 3500 pa + Rs. 5000 SIP in a diversified equity fund).
      for Marriage (separate term insurance of 40 lakhs @ 6000 pa + Rs. 3800-4000 in a separate folio of the same diversified fund).

      -Ramesh

  18. Vinay Sarda says:

    @ Ramesh,

    Again and Again you are insisting on same thing Term plus MF Schemes. What happen when one dies in between, the Term Insurance will take care of the day to day needs only by way Interest recd on Bank FD’s.

    What about Child Education Plans & Marraige Plans ?????? Even if one goes for Rs. 50 Lacs Term Insurance, this amount his spouse had to kept for next 15-20 years intact to cater the Day to Day needs by way Interest she recieves on Bank FD’s. Even the extra interest she receive had to be invested again in Bank to take account of Inflation in future years. So forget the amount receive from Term insurance to be helpful to take care of certain goals one had in life. Calculate everything on paper if you don’t like Excel you will cum to know the difference.

    ULIP plans make ones financial planning complete (one should understand that its premuim are going to be invested in Equity like MF Schemes which will fetch gud returns in long term)
    (The expenses part had been discussed in above replies so no need to talk on that, whcih ULIP’s scores more in long term than MF’s Schemes)

    -Vinay

    1. Ramesh says:

      How much do you think Marriage will cost 25 years in future?
      And what about the cost of Education, again 20-25 years in future?
      Lets do this by excel / paper.
      Why would anybody keep all money from term insurance into FD (that just means, bad planning and wrong knowledge). But lets forget about that – I have emphasised again and again on the education part of the spouse about everything?

  19. Vinay Sarda says:

    @ ramesh n ALL,

    I had given real life example, what people are doing I don’t know but what they should do I had shown in above example.

    As per your suggestion I had shown the above example if sumone saves Rs. 8-10K per month that means Rs.1 lac approx for the year. (This is the figure which common men saves genrally and is available amount for investment and insurance)

    I am against Endowmnet policy rather people should invest in PPF + Term Insurance which have added benefits of attachment of property rights when one goes bankrupt. No Banks, Financial Inst., Court can attach the same.

    In the above example I had made very clear that what one should do with all the Insurance and Investment Products in market.

    The total avoidance is Pure Endowment Policies & Money Back Policy and putting all eggs in one basket like only going for SIP’s in MF schemes.

    The above example of (Term Insurance + Mediclaim (FF) + Child ULIP + SIP’s ) shows how one can keep well diversified in best of all the Products available in the markets.

    Nowadays Equity SIP’s are also available they can fetch 25% + returns in long term but are risky too. Same in Equity MF’s one can earn sum what more returns but are risky too.

    -Vinay

    1. Ramesh says:

      From your statements, atleast one thing we can agree is Avoid endowment policies. (Shashank will not agree in this)

      Also, another thing is to educate your spouse, so that she does not make basic mistakes in financial planning, in case you are not there. –> Hence the importance of Will and probably a Statement record of all your Ideas and Reasons for why and where did you invest? So that she is not stuck up with only FD and PPF as the lone and sole source of money/income. A trusted FP also comes in the picture at this time.

      25%+ returns (everybody can dream). It is not possible in long term, ever. I dont think projecting those kind of returns favors/helps anybody.

      Just because someone has invested in a scheme called Marriage or college plan, does not entitle him to get the required money for the marriage or college funds of their children respectively. The underlying investment amount, premature withdrawal, vehicle of investment (traditional or equity), and the performance of that vehicle are of paramount importance. All this makes the future prediction of final amount, or prediction of CAGR, very erroneous. So the prediction game is absolutely error-ridden. Better not do it instead of doing it with big errors. (An eg of this can be seen in the modified excel files which i have posted).
      Suppose your fund value 15 years hence is 25lakhs, and the next year, the stock markets go down by 30% (a very normal scenario), your fund will lose 7.5 lakhs bringing it down to 17 lakhs. and it can take many years again to get it back to 25lakhs, if you still persist with an equity portfolio. This just means that once you are near the goal, and your fund value is ok, you should switch to debt instruments and get out of equity markets. Otherwise, for long term growth, you are better off with equity-oriented portfolio.

      Regarding your scenario. Unless you have a term insurance, the Ulip will not help you in any case. The 25lakh term insurance is the only help provided to the wife and kids. Educating the wife to put the excess amount of money into MF SIPs is the correct solution. Term insurance amount should be such that, in your absence, your dependents do have “enough” money to continue living the same kind of lifestyle plus take care of future major requirements / and present debt issues. A lower amount just means you are underinsured.

      A long term SIP in the worst performing equity MF in the last 10 years has fetched more than 8% returns. (as per one economictimes article). Getting 2/3 MF is equivalent to “not putting” all eggs in one basket.

      However, putting your money “blindly” in a college fund/marriage fund is surely “all eggs in one basket” and in a basket which because of its cost structure is sure to give you inferior returns for atleast the next 18-19 years (already proven in my excel sheet, for a large number of scenario). In the end, its your money and only you are responsible for the returns on it, and no one else.

      Using multiple products is not financial planning or risk management. Using the available instruments in the best possible way with the most amount of returns in most scenarios is financial planning. Just because there are 10 products does not mean we should get them all or even 8 of them. Keep with the best proven value-for-money products. A child Ulip in that sense does not help with any goal. It does not provide adequate insurance and it does not give you the best returns, as simple as that.

      A proper basic knowledge coupled with proper use of term insurance and MF is the best way forward.

  20. M.H.Raashid says:

    @ Vinay and @ Ramesh

    Finally going through ur debate both side were keeping there points very well n its all depend on the investor to decide wthr wch way he wanna go Child ULIP, Term+PPF, Term+MF, or Term+PPF+MF this is a very good option wch Investor can go in detail n C the best n follow that…But the point is mine I m confused n unable to move on with dis situation so I need ur help on dis.

    I have a Endowment Policy Jeevan Anand on my name n my wife name with 8100 Quarterly payment n I already paid 3 installment of 8100*3=24300/- but i went through the calculation n also went through the detail given by Agent n know i check with the Agent of my maturity so he is telling me different words he is telling me I will get max 6% interest on premium but in discussion while taking policy he gave me 10% commitment, so its clear cut case of cheating on Customer n I got the info from some blog that I can complain to IRDA. But know I decided to cancel my policy to LIC n Agent says I wont get my money back n he suggest me 2 continue for 3 years n get back the full premium paid. I am unable to understand wthr shud I continue dis for money back or shud I forget n leave my hard earned money or shud i complain to IRDA.

    I stay in DUBAI n its very hard to reach there offices n I dont have much time i have 2 decide this ASAP so guys please suggest me…Is IRDA take action on dis kind of cases.

  21. Ramesh says:

    @Vinay,
    I think you should forget about limits (of 1 lakh, etc).
    Just give a real life ex. I have asked you because I am not a financial planner. So you being one, should help us out here.

    And forget about people getting term insurance. Dont mix term insurance and the child ulip. Its mostly an either / or situation for most of the people.

    the more likely scenario is a mix of ulip and endowment policy and never a ulip + term insurance.

    I will try to give a scenario:

    a 32 year male wants a child ulip, after lot of advertisements and promotional material. and he earns 25k per month and can save 8-10k per month. so how would you advise him. remember 8-10k is the total money that can be saved including money for his own retirement and money for his child (who is recently born, say 3 months old). i dont think such a person is going to try and use multiple things (like term insurance + ulip + MF, etc) – he is more interested in getting the most out of his money.

    Most likely that person will buy out a child ulip and an endowment policy. that is the sorry state of affairs in india. so he will put 40k per annum in child ulip. and 60k in the lic traditional policy.

    please go on from there.

  22. Vinay Sarda says:

    @ Ramesh N ALL,

    Take an example of above named Mr.Sanjay Patil he had 1,00,000/- out which he invests 50,000/- in Child Ulip Plans annually, 5000/- each on Term Plan (for Rs 25 lacs for 25 years) & Mediclaim FF Policy (3 Lakhs). And rest 40,000/- in SIP’s of Equity MF’s.

    ->Now if he dies at any age what will happen,

    In child ULIP plans the Sum Assured is paid immediately whenever he dies and rest or balance premuim is paid by the Insurance Co.

    Say he paid Premium of 25,000/- each P.A. after taking 2 child policies (One for Higher Education and Second for Marraige) with Sum Assured @ Rs. 5 Lacs each (20 times to avail the tax exemption in DTC which is gud step taken by government) + his spouse may get the Sum Assured of term insurance Mr. Patil had taken separately (assume it coz I am always in favour of Term Plans) of Rs.25 lakhs. Now his Spouse will keep both the Amount i,e Rs. 35 Lakhs in Bank FD’s which are safe and earn 8.5 % on Annual basis which she might get Rs.3 lakhs approx. This amount will keep the day to day expeneses in Check and Balance will be reinvested in FD’s again.

    Now the Child benefits of Premium Wavier Rider will cum into effect the Premium of Rs.25,000 each will be paid by the Insurance companies, which might get better returns then bank FD’s say @ 12-13 % on both Policies this amount will take care of the Higher Education & Marraige purpose. After all this who will take care of Equity MF SIP’s , his spouse don not have the knowledge of markets and is risky investment too. She will withdraw the same and again keep in Bank FD’s to earn the same 8.5 % interest.

    Atleast in Child Plans Mr Patil’s both the goal for his child are intact even he is not there unfortuantely.

    And what happens’s to SIP’s ??????????????? (The Big Question).

    Again the 2 % here and there is ok say ULIP’s might get less then Equity Schemes (agreed).
    But denying the Child Ulip Plans in Financial Planning is not gud thing. (In term plans one gets 0 % returns that means they are bad according to FP’s the same way we have to look at ULIP’s Plan we might get lesser returns but features and benefits should not be ignored)

    (Aey mere watan ke log jara yaad karo Kurabaani, joh Saheed howey hai UTI schemes mein unhe na milega paani !!!! ) – US-64 Schemes / Mastergain / Masterplus.

    Last thing both products are not guaranteed & have market risks.

    – Vinay

  23. Vinay Sarda says:

    @ ALL,

    1) The question I raised was to show the benefits of CHILD ULIP Plans when the parents had died in unforunate event. So the Premium waiver Rider comes into act and the investment is made as per the Insurance company who might I have more knowledge then the Child or the spouse. Till DTC comes,the investment made are all tax free. Which makes this products more useful. (coz money saved is what money earned this concept had been for last 1000 years denying the same is foolish)

    2) Then the debate tilted towards the expenses of ULIP’s which I had proved in long term i,e 15+ years (in excel at par for both products) how ULIP’s fare better than MF’s Equity Schemes.

    3) Then it tilted towards Returns of both the products which in both the cases are not guaranteed and are most volatile & risky but what happens in ULIP’s where the Lock In part and Insurance tag comes into play which people do not take out easily as is in the case of MF’s Schemes. (Even when the market falls)

    4) Then it went through the long term sceneriao and all that which in above reply I had showed the example of JM Funds, UTI Funds, Magnum Funds, LIC Funds, L & T funds, Escorts Funds, JP Morgan Funds, Principal Funds, HSBC Funds and many more which are big name with worst perfomance in long term in sum cases even negative returns (Naam bade aur darshan chotte). So the people belief for this Equity MF’s Products are negative.

    And last but not least even if people in India gets 12 % decent returns over long term (15+ years) they are happy rather investing in MF’s Schemes which had data of -ve returns. (Some of the schemes had been closed some had been merged all this non sense happens in MF’s Industry with toothless SEBI as it HEAD MASTER)

    – VINAY

    1. Ramesh says:

      @Vinay,
      It will be a good help to people if you can produce a real-life example of providing benefit of a child Ulip for the following scenario:
      A 30-32 year man, with a non-working wife, and a new-born child 2 months old. Now the benefits in case of:
      – death of man in 3rd year.
      – death of man in 10th year
      – death of man in 20th year and finally,
      No death.

      That way, please also include the particular working Child Ulip which can be purchased presently (not any old one), the application of DTC regulations from next year, effect of inflation, if possible. Any ceilings which the Ulips restrict you to must also be specified.

      I think this real-life scenario should help to further the debate, otherwise the same self-proclamation statements are being repeated. This also assumes importance, because of recent barage of child ulip plans advertisements.

      Ramesh

  24. prabeesh says:

    @ M.H.Raashid

    I think you should read many articles from JagoInvestor and other financial planning blog and get to know about inflation,IRR and Insurance Needs etc. Then you will have a better picture.

  25. M.H.Raashid says:

    I think Ramesh shud undrstand whn da CEO says its all fact in his link http://www.themoneyquest.com/2011/03/koffee-with-fisher-ceo-of-life.html look what i will make with MF is noway concern to me whn I know what I made or making from Insurance (yearly I m investing 40k for 21 yrs for maturity amount of 30lac + 10 lac risk cover my need is only 25 Lac after 20 years as saving but i m getting 30 Lac wch is will enough for me n bonus is 10 lac if I Die bfr 70 years…So why shud I thnk what i will make if I invest 40k in Mutual Funds as simple is I dont want crores, i dont want to be a billioner investing in MF its ok to b a Lakhpati its well enough n wthr a Insurance Agent or a Money management Company no 1 works for free nor Advice u 4 Free its all part of civilised societies Culture, cunning is in our Blood by nature so expecting a clean person is noway……

    The Money Quest blog interview is written in a frustration the fact is after 30 years India will b same as know v might devlop in some sector but the Middle Class will remain same as Poor n Rich also after 30 years the percentage of crorepati might increase more 5% as of know but the lakhpati will be more n more so the fact is ppl always c the security of there earnings n assest not every 1 play Gamble in Stock market, thats Y PPF or FD is more acceptable as security in INDIA by Lower Middle Class n Middle Class n Upper medium Class n also some Rich Class n Insurance is accept as more as a Investment plus the Bonus and Risk cover… N this is a fact very much fact n dis is accepted by Millions of peoples u may say they r fool in frustration but fact remains fact…

    Agents work for commisions if thy r Insurance Agent of MF Agents no 1 work for Free so its better to try the talent of convincing people in market instead writing a blog in Frustration n Pain….

    1. Ramesh says:

      Nice Mr. Raashid.
      So you are “investing” in an insurance product! Cant argue with you then. Good luck to you.

      But just have a look at the numbers-
      Investment of 40k for 21 years will give you 30 lakhs (if the IRR is 11.5% per annum compounded)
      – and 25 lakhs @ 10% pa compounded
      – and 15 lakhs @ 6% pa compounded.
      provided there are no other charges or mortality charges.
      It seems you have a traditional plan, and you have been provided some “illegal” projections (as per IRDA, you can only be provided a max of 10% return, that too with all the charges shown). As per the norms, the traditional plans only give you 6-6.5% pa compounded growth.

      I havent even brought in the effect of Inflation.

      So, before jumping to conclusions, have a reality check.

  26. prabeesh says:

    @ All

    The point was not to show MF rocks or ULIP sucks..it is to show in plain view what is better..

    Even if someone can clearly show ULIP can take over MF in 15 year run i am not convinced with the product in the current form.

    I agree about the disability and features of it.But i dont want to buy a product which is so complex and you have to bang your head with calculator to determine is it worth or not.

    I prefer a product which i simple and straight forward and also convenient for all. To explain a common man about the features of Ulip and make him understand the charges and returns generated so far it quite immpossible .. i dont know how the agents are explaining to them.

    @ramesh its a very nice post.

  27. Vinay Sarda says:

    @ Rashid,

    Thankx for your apperciation , you understand the whole debate as you looked it from a 360 Degree angle and rest of the FP’s debating here are looking from 180 Degree so they tuned to only MF’s Schemes. Here are more facts about MF’s Schemes below :

    Given time, mutual fund schemes don’t get better and better – THE MYTH

    It is always said that if you want to get the best out of equities and equity mutual funds invest for the long term. Private sector mutual funds were allowed in the game in 1993. So, we now have a track record of 18 years. (It is biased towards the funds that have survived. Nobody has a complete record of funds that have closed down.) I have done an analysis of funds which have been around since 1995. All these funds have gone through multiple cycles of bear, bull, volatile and stagnant cycles. They have had ample time to choose the correct stocks and show their performance over a long period.

    The Sensex was 3,260 around March 1995 and it is at around 18,400 mid-March 2011. Thus, it has risen by 11% compounded in the last 16 years. How have the earliest funds done? Some 20 funds that were launched in 1995 have survived. Of these, 10 have outperformed their benchmarks. Among the top performers are Reliance Growth (28%), HDFC Equity Fund (23%), Franklin India Prima Plus (21%), Reliance Vision (23%), Franklin India Bluechip (19%), Birla Sun Life Advantage Fund (19%), ICICI Prudential Power (16%), HDFC Capital Builder Fund (15% and Franklin India Prima (21%).

    Among the underperformers are four funds of UTI that have been consistently underperforming since inception. Of them, UTI Mastershare growth is the oldest. But Mastershare is more famous for the annual dividends that the fund has diligently paid out, during the Diwali festival. It’s an illusion though; dividends come out of the own pockets of investors and the fund’s net asset value (NAV) reduces by a similar margin. Mastershare has just given 7% return since inception, whereas its benchmark has given a return of 16%. Among the other underperfomers are UTI Equity Fund with a 9% return, UTI Masterplus Unit Scheme 91 (9%) and UTI Top 100 Fund with (6%).

    JM Equity was launched in April 1995, that is around 16 years ago, and it has managed to give a return of 8% since inception. Whereas JM Basic Fund was launched in June 1997 and has fetched a return of just 1% as compared to its benchmark BSE 200 which has gained 14% over a period of 13 years.

    SBI Magnum Equity Fund launched in January 1991 has fetched a return of just 7% over 20 years, whereas its benchmark earned a return of 16%. SBI Magnum Multiplier Plus 93 launched in February 1993 and SBI Magnum Global Fund 94 launched the following year, has managed returns on level with its benchmark with no extra return over an 18-year period. Taurus Bonanza Fund, launched in August 1995, earned a return of 10%.

    – Atleast in ULIP’s one had commitment to stay invested for long term which is good for a investor point of view whereas this lack in SIP MF’s Schemes with people roaming from one to another MF’s Schemes by looking ther past performance of 1-2 years, which only some (0.01 %) FP’s understand.

    When one look at sum best performing funds for last 16 years they are not performing well in last 4-5 years. (Reliance Growth, Birla Sun Life Advantage ,HDFC Capital Builder ,Franklin India Bluechip, Sundaram Select Midcap Fund). So like stocks one cannot assess the MF’s Equity Schemes which are highly volatile in nature.

    – Vinay

  28. Vinay Sarda says:

    @ Shashank

    Well you understand the need of products , the discussion was for the same thing you pointed out of Features of a particular product and its importance.

    But it then gone to Overall Returns scenerio that some of the FP’s pointed out. Even then I showed the overall returns will be more in ULIP or Child Plans then Equity MF’s over long term say 15+ years.

    As you pointed out every product should be looked in before making a proper and long term Financial Portfolio of Self or for Others.

    The missing riders and Higher FMC are the main difference in the Equity MF and ULIP Plans. (which one should understand)

    Past performance of Equity MF’s are not guranteed in future and same is for ULIP’s Plan so what is difference between them.

    -Vinay

    1. M.H.Raashid says:

      @Vinay n rest

      Its very powerful debate Vinay vs Ramesh/Money/Manish/Shashank/prabheesh at the end who wins its clearly show in updates I congratulate Mr.Vinay for giving vast knowledge on ULIP performance in long term n also I appreciate for his acceptance of of Term Insurance is best comparing to all n also accepting MF also good if taken if followed properly n rest ppl just want to show only MF rock the market n rest is not more than kachra….

      And the big surprise of all dis debate ULIP vs MF or Insurance vs MF the main person Manish was not participate its surprise. Is this means he felt insecure so his juniors were debating or he was thinking of his image or what exactly the reason he have not participate as he always will be the front runner to answer or debate on every topic related to MF…..

      Any how congrats Mr.Vinay for winning this debate…

  29. shashank kashettiwar says:

    Alas! If the whole focus is more on quantitative aspects of the product then above expectations are probably correct. Why for only one, it is true for everyone! Who doesn’t want good returns on investments?

    But insurance planning doesn’t mean life insurance planning only. In personal insurance planning, proper coverage of the disability scenario is equally(actually more!) important. Because in India we do not have standalone disability policies/plans which would cover the disability through accidental as well as natural causes, we have to create such support through a surrogate mechanism. This facility can be effectively created through savings type of life insurance plans only(ULIP and traditional) with appropriate riders eighter built in – like child plans or add on riders in other savings plans.

    Now are we going to say, do not create such support mechanism till these standalone type plans are created by the regulator? Or would it be more sensible to create that support mechanism through whatever is best suitable and available in the market place?

    And it is a plain, crystal clear fact that we cannot create this scenario in term+MF combo strategy. Even if ULIP was giving low returns compared to term+MF, still we should have it in the portfolio and allocate a proper premium budget for it.

    What is required is a balanced look at the need, features and placement of a product in the total portfolio, but even after such a long discussion that point seems to be missed!

    Chasing the maximum returns though desirable to everyone, doesn’t lead to prudent planning always.

  30. Vinay Sarda says:

    @ ALL

    The debate was to include the ULIP’s plan in one’s portfolio apart from other financial products for long term , (due to some of the benefits they have including the new Trigger Portfolio Strategy which is a useful option in the ULIP Plans.)

    Also the reforms that have been made after 1st September 2010 are in right direction by IRDA more to be expected in near future.

    -Vinay

    1. Ramesh says:

      Lets wait for those more reforms!

      Ulip will be good when the FMC is low (below 1.2%), uses better mortality charges with conditions for non-smokers,females,etc, zero policy admin charges, zero premium allocation charges for beyond 5 years and also on all topups after say 5 years, etc. Until then, no from my side!

  31. shashank kashettiwar says:

    Prabeesh, what you say is correct that if the fund underperforms then you do not have any option to shift out of the ULIP and funds like LICMF’s are there too which we wouldn’t like to touch! So in this sense the ULIP is rigid. But alongwith these rigidities come some other qualitative features which are not available in the more flexible solution of term+MF; like the waiver of premium rider and a additional rider in a child plan- family income benefit rider. And all these come in a packaged form increasing the convenience of the buyer at both mental and physical way. These qualitative features can compensate for the possible quantitative loss incase the funds are not switchable but if the eventuality of disability occurs. Also as we are investing in the equity space the overall returns would be belonging to that class of investment. So the relative position compared to inflation or debt class assets’ investments could be better even if not among the best in the class as rightly pointed out by Ramesh (about the point to point comparison in low performing funds and they too would have given better returns on SIP route).

    Will this packaged solution be better or the unpackaged solution would be better, where life cover, investment and disability cover, everything would be chosen separately? That might happen in future when we have standalone disability covers which at present are not available in the country and we have to cover disability through surrogate plans like accident policies and riders in the life plans- WOP, PAB, ADBR etc.

    When a few years back I was strongly recommending a high multiplier in a ULIP, then the differences between the premium rates of level term plans and mortality charges inside a ULIP were very high.Even if the cost of commissions was high still it was worthwhile going for ULIPs with a high multiplier instead of term +MF. Some of the underperformance of the ULIP fund (even if it occurs) was acceptable. So the quantitative benefit was not lost and moreover the qualitative benefit which will convert into quantitative incase of eventuality was also there.(But even at that time majority of the commentators were deriding ULIPs without knowing all the features!). You will not find the ULIP to become better not at 18-19 yrs but much earlier. Even 18-19 years is also not a bad deal if one considers the product is able to serve my retirement needs.

    Today there are no online savings plans offered, no smoker and non smoker distinction in the ULIP mortality is there, neighter any high SA discounts are there. Who knows what changes could be there and the balance may again tilt towards packaged products.(I have also read about portability of ULIPs mentioned by someone!)

    The product space keeps on evolving, shifting and so does the regulatory, tax and markets environment. General populace’s knowledge, ability and willingness to try different investment classes or understanding the importance various investments/product undergoes changes. In a working life the income and consequent savings, investments grow many fold. The investments made in products bought today look punny after many years and the ability of these investments to cause great harm or impact on the overall picture in future reduces dramatically. I see this day in day out. Those cover of 25 k or 50 k bought some 15/18/20 yrs back and the maturity amounts are immaterial in the overall picture today. But when the person bought them so many years back’ then those premiums and investments were so significant looking when compared to the then prevailing incomes!

    So the one ULIP which you have bought will be just part of a big investment portfolio. That portfolio may be carrying something elase which did not deliver the way it should have. In this portfolio; if a person is alive after 18-20 yrs, this ULIP bought long long ago even if performing not so well and which couldn’t be discarded but giving him the equity class returns ,wouldn’t be so bad a deal when all possible qualitative(switching, tax, waiver riders, ease of asset balancing, systemic discipline) and quantitave benefits are seen/weighed properly.
    Different products and strategies do have their individual benefits and limitations and so are the abilities, temparament, situation of an individual different from other. Savings plans of insurance whether in traditional or ULIP space do have a role to play, they should not be wished away.

    shashank

  32. prabeesh says:

    @vinay
    Why you are thinking ULIP Equity Funds will under perform for 18-19 years ? (When its like any other Equity MF Schme).

    No i am not saying it WILL rather what will i do if it DID? Not for 18-19 year but even if its just for 4-6 years. If someone today ask you to put money in the Principal Growth or LICMF Growth will you invest in those or HDFC TOP200 of the same category?

    I also agree equity funds are same in ULIP just like MF.But my point is i can switch my money in MF to another but not in ULIP.

    Also why would i choose someone who wants me to pay 15 or 1.5% for SIP in MF,while the same is free of charges.

    Fyi..FundsIndia does not charge anything for MF related transactions.

  33. Vinay Sarda says:

    @ Prabeesh / Ramesh

    Why you are thinking ULIP Equity Funds will under perform for 18-19 years ? (When its like any other Equity MF Schme).

    Look in ‘Investors India’ magazine for ULIP Funds performance of various insurance companies. They are more or less giving returns like any other Equity MF’s.

    In ULIP minimum Risk cover is 10 times or 0.5 X Premium X Years which is higher and its does not come to 31.5 times you have calculated , so mortality charges will come down.

    Also there is inital charges in SIP investment you do via ICICI Direct.com or fundsindia.com its around 15/- or 1.5 % per transaction whichever is lower that should have been taken into account while making Excel Sheet.

    All these small factors effect returns in long term returns.

    I am not against SIP’s in MF , but is trying to sort the matter of Anti-ULIP stance by some of us had taken. (Regarding expenses and returns of the same) , and why should it not be included in the financial planning over long term say.

    I am totally against Pension Plans / Bank FD’s / Endowment Plans coz of there returns over medium to long term.

    One should oppose any products on its returns(over a period) and not its expenses (who is getting what and all that)

    After all what I get is more important over period of time.

    Rgs,
    Vinay

    1. Ramesh says:

      If you are paying money (Rs. 15 or 1.5%, etc) to start/continue a SIP in MF, then you are wasting money senselessly! The entry load is Zero and you should not pay it. period.
      The calculations in the excel sheet consider Equal performance of both the funds, not more not less.
      I have taken values from the illustration provided by the company using Min. Multiplier!! Why do not you paste an illustration from your own side of a Ulip which you consider the best.

      Returns=performance – expenses. If performance is equal, then you should go ahead with a less expensive product. Till date, the ulips are more expensive and become less expensive only after 18-19 years as per the excel sheet data in a large number of scenarios. That’s why, there is so much emphasis on the index funds in US (because they are less expensive).

  34. Vinay Sarda says:

    @ Ramesh,

    Thanks for the comparision you made to all, from your working on excel sheet you have shown that over longer term of say 18-20+ years ULIP’s are fetching more then Equity MF’s that was I trying to say in all over the discussion in the forum.
    Your returns over the 30 years period were 17,65,757/- for Equity MF and 19,59,401/- for ULIP Plan. (Plus the insurance benefits are additional which is totally absent in Equity MF’s)

    So in long term ULIP can be more powerful then Equity MF’s also if we can manage the ULIP by way switching among the funds it is far more superior then Equity MF’s.

    The power of Switching funds will add more returns to overall performance.

    Again thanks for your comparision, the same thing I was saying on Forum over last 3 months. The returns over long term in ULIP Plans. (The commitment & Assurance we get from the investment in ULIP is gr8)

    Apart from SIP in Equity MF’s one can go for ULIP’s in one’s Financial Portfolio.

    Rgs,
    Vinay

    1. prabeesh says:

      @all

      Its good to see debates and excellent presentation and comparison.Well may be like in excel the ULIP might out perform MF.

      Still i would go for MF if it is purely a investment objective. Again like i said before, the flexibility is a huge issue with ULIP. How long will you digest if your ULIP is consistently under performing for long time,do you have a option?. No you are struck with it for life(18-20 years is almost 70-80% working life of humans)

      1. Vinay Sarda says:

        @ prabeesh,

        How can Equity Fund underform for long in ULIP’s or Mutual Funds when history had shown returns over long term in Equities are best. Then why a ULIP Equity Fund will under form. Also in ULIP there are lesser numbers of Equity Funds to select from. Not like Equity Mf’s where there are 100 of funds to select, and one can be wrong by selecting a wrong fund in MF’s but to be wrong in ULIP Funds is very rare with 2-3 funds available.

        Also due to commitment of investment a fund manager might not make mistakes coz of continuous funds flow in the ULIP Plans , (lesser redemptions) which are more higher then any Equity MF’s.

        -Vinay

        1. prabeesh says:

          @vinay

          I think your missing major point here,,when you say equity fund its not just index fund ,,,but funds which are managed by fund manager. I don’t have data of any ULIP but i can give some good example of MFs which have under performed consistently.

          For Example
          A 5 year return for following fund
          Large & Mid Cap ( category return average is 14.94)

          Principal Growth-G 6.42
          LICMF Growth-G 9.20
          LICMF Opportunities-G 9.22

          If you assume in long term all Managed fund will perform similar ,then you are completely wrong. If all are going to return similarly then there is no point in taking up these fund rather can go with index funds and save FMC.

          My point is what if the ULIP i choose performs like the Principal Growth or LICMF Growth MF. Is there a option for me to get out ? Am i not struck in that case?.

          In Ulip your going to decide NOW that the choosen fund will perform,if something goes wrong there is nothing you can do,cause i will see good return only afte 18-20 years. If all those people signing for ULIP is explained with detail,i dont think much indians will be buying it.

      2. Ramesh says:

        @prabeesh,
        you can change the data in the excel sheet and see the permutations. It will be a good learning thing to see the equity returns over long periods.
        Try with initial good years, then bad years, then japanese data (underperformance for 20 years), etc

        Ramesh

    2. Ramesh says:

      @vinay

      I agree with prabeesh about you missing a major point! Actually 2 points:

      1. Are you ready to have a product which underperforms for 18-19 years just because of the cost structure of the product, and not the actual performance. I have not included any top-ups in the excel sheet (why? because that will conclusively say that MF is far more superior and flexible. All Ulips post 1/9/10 have premium allocation charges of 1-2%. Do you think a person will only be investing a fixed amount every year for 20 years. What will he do after say 3 years? If he invests in the same Ulip, he is going to be disappointed with the PAC. Ignorance will be bliss for him in that case.
      If anytime the ulip increases the charges (which they can do as mentioned in the policy document), you are stuck.
      After newer actuary tables, and more refinements in the Ulips (whether by competition or because of IRDA), if there are any new ulips within the next 18-19 years, you cannot shift!! Your returns will suffer.
      2. You have made 2 other assumptions. Switching between funds has and always will decrease performance rather than increasing it for 99% ulip holders. Because 99% ulip holders do not know how to evaluate the present and the future of markets. What do you say? should the ulip holder shift to debt or should he shift to equity Today! Or in the next month?
      Another assumption which is erroneous is that switching does not affect the fund manager performance. Even if money is put into the ulip, not necessarily it will go to the equity fund manager. Both switching and alloting a fixed amount to debt will decrease the amount available to the equity fund manager. Redemptions in the form of surrender and partial withdrawal will also affect him the same way redemptions in a MF do!
      In that sense, only a closed end (no in, no out) fund can work. And equity MF and equity Ulip fund work the same way.

      If you are wrong in a equity MF, you can correct it. If you are wrong in Ulip, you cannot correct it.

      Switching just once in the wrong direction can put you 20 years behind!! And vice versa. The chances of former is 99% and the latter 1% for most!! you decide yourself. I have presented the data.

      This discussion started with child Ulips. If I try to put that data in my excel. Then the ulip will be never be able to catch up with MF in any period!

      Ramesh

  35. Ramesh says:

    The basic flaw is not in the performance of a ULIP fund, but rather in its structure which is not at all good for the overall investment return. Even if a ULIP fund performs at par with a MF fund, the expenses and charges will eat through the return. Thats what I want to emphasize and till date you have not been able to prove conclusively.

    I have prepared a modified excel sheet with variable returns (can be changed). Kept the MF FMC @2%. used an illustration from aviva fla plan with 30 year term, 25 years age, minimum multiplier (31.5x) and payment per year.

    This plan gives you 3-1.75% loyalty bonus every 3rd year from 10th year onwards.

    The link is:
    https://spreadsheets.google.com/ccc?key=0AluNeNVB–yYdGw5TmRZM2s2bkRIbjA1cXpuMzdEWGc&hl=en

    Despite the lower FMC and loyalty additions, the ULIP only takes over from the MF after 18-19 years in a large number of scenarios!!

    Ramesh

  36. Vinay Sarda says:

    @ Ramesh,

    I raised this question on the forum to discuss the Expenses Side of the ULIP’s Plan & Equity MF’s and hence made comparision of the same on the Excel Sheet with available Data of both the products. And assuming the same returns on par for both the products , got the result which is in front of everbody which might be shocking for all of us.

    Here we cannot compare any funds and its future behaviour.

    And from the results we can see which product will be better (if kept on par). Let more time go ULIP funds will also perform well on par with Equity MF.

    Rgs,
    Vinay

  37. Ramesh says:

    Ok vinay.
    that comparison is for a person who wants to have a reasonable insurance and investment today and the options regarding it. And the comparison between a term plan (kotak preferred plan, offline) and a reasonable MF combo with two of the ULIPs.
    The expected returns are not calculated at 6/10 or your 12% steady year-on-year returns. The returns have been taken from data of US/Japan equity markets, which have also been provided in the same excel sheet. You can change the returns (take any period of 20/25/30 years) and the result will come to you automatically.

    Regarding investment, your excel has some serious flaws, which I have mentioned above. To be clear once again, no one plan gives you a steady 12% return year-on-year. Equity returns should be variable and your excel sheet should try to incorporate that to get a better idea.

    You post the best “current” ULIP plan/plans (whichever you think are best in any terms) and lets have a comparison as an investment vehicle which is better using a proper excel sheet and proper data. What do you say?
    ACE Ulip is discontinued, as you mentioned. LTP I have compared. Also, bring some real life data calculations from companies. Have an illustration from Aviva FLA for example.

    I am not against Ulips. But prove to me, that Ulips are “better” than MF.

    Ramesh

  38. Vinay Sarda says:

    @ Ramesh,

    I had look in your excel sheet I do not know what you made comparision for….

    If you want invest in ICICI Premier Wealth Stage-II Plan is giving IRR of 10.73 % in 25 years for returns on 12 % also the Mortality Charges are included in the excel sheet that had been upto 20 times.

    Also be invested for long term in ULIP’s you will see the result. We have to stick to one product to fetch the result. (Atleast invest for 20+ years ). Also after the 1 st September 2010 their is cap on expneses on ULIP’s which is rewarding for long term investor.

    And the excel sheet comparision that been made by me shows the difference regarding all the expenses that ULIP’s & Equity MF’s . And the data had shocking truth go through it.

    I am not against any Products including MF’s.

    But shouting against a product without having proper knowledge that too on Expenses is not right.

    What Equity MF’s schemes do are the same thing ULIP’s fund do the thing is that all the expeneses is set off after certain period of time. And the Loyalty addition makes it different in Long term.

    Rgs,
    Vinay Sarda

  39. Ramesh says:

    @vinay.
    Can you tell us a SINGLE good ULIP, in which I can invest now.

    also, for investment a ULIP is absolutely senseless because of the reasons that I have mentioned above. Some additional reasons are because of DTC:
    1.Under DTC, a tax policy offering less than 20x annual premium will not get tax benefits. Also the money that you will receive after the policy, if that does not offer 20x life cover, will get taxed at marginal rates.
    2. Tax deduction limits related to insurance has a total kitty of only 50k. Btw, this kitty also includes medical insurance and children tuition fees.
    3. Partial withdrawals will attract tax under DTC.
    4. Premature surrendering will attract tax under DTC.

    I think it is you who are not accepting the truth. why dont you go through the excel sheet that I have provided and do your calculations!

  40. Vinay Sarda says:

    @ ALL & Ramesh,

    I had invested in the Both Term (with TPD benefits) + SIP MF’s & ULIP Plan to include all the Financial Aspects & Products that are availalbe in the market.

    One thing to note is that best performing Mf’s Schemes are here for more than 12 years or so when markets were at 1/7 of todays level and ULIP’s are for just 7-8 years or so.

    We cannot predict the performance of the fund whether its ULIP’s or Equity MF.
    But comparision was to Quite the noises regarding the expenses of ULIP’s and that been done through the comparision on the Excel Sheet. (Everybody should be ready to execpt the truth.)

    Where the Huge differences in the return had been shown around 2.5 % (IRR) less in MF’s Schemes. And that was all becasue of the Higher FMC charges & No Loyalty Additions (in MFSchemes).

    Also this year we might see 2 Lakh Crores of Investment in the ULIP’s Plan and 1/10 th of might be invested in Equity MF’s. (This shows the confidence of the common real-life investors regarding Equity MF’s).

    My suggestions will be to all investors want to invest in ULIP’s should carry on by selecting good ULIP’s that are performing well. And not listen the FP’s regarding the Expenses of ULIP’s Plan and all that.

    In excel sheet I had not taken the Charges that an Financial Planner will charge yearly and if that might had been taken then returns might be more lower in Equity MF’s.

    https://spreadsheets.google.com/ccc?key=0AkUpQCwQy7ypdFR0SjNvdXhIMlVGUlczY0ludmE5TVE&hl=en&authkey=CObShYMP

    Pls click on the link above and see the difference.

    Rgs,
    Vinay

  41. Ramesh says:

    I have created an excel sheet for insurance+investment at

    http://localhost/jagoforum2/comparison-ulip-mf-term-excel-sheet-real-life-data/1009/

    Check that out for Investments. All your queries and doubts will be cleared about an investment vehicle.

    “All funds cannot perform well”.
    I would not like a fund to do well, but my portfolio not to. If my portfolio does well, even if the fund is faltering, I would be more happy!!
    Ramesh

  42. Vinay Sarda says:

    @Prabeesh & ALL,

    To make One point clear FMC charges in ULIP are 1.35 % (In LIC ‘s its just 0.80 % ) and in MF’s it 2 % (even its average its High). Which cover all the Intial Expenses in the ULIP’s had in long term. Also the Loyalty Additiion to the fund value after some years start making the difference (see the comparsion that is listed on google that I had for all on excel ), they give loyalty addition coz of your Loyalty towards the Plan for such a long term. (which might be missing in MF’s Scheme because you tend to change the Scheme once it start underforming for 1-2 years that is not in ULIP’s – the ‘commitment’ which is rewarded in ULIP’s)

    The main thing on this Forum was to Raise this issue which all are just saying about the expenses of ULIP’s and forget the charges of MF’s , this difference of 1.35 % and 2 % (average , but most of the scheme charges upto 2.5 % in initial 5 – 7 years) . This difference of charges of MF Schemes cover all the Expenses of ULIP charges in initial years. (this all had been proved in the excel sheet regarding the expenses and their effect on the returns ) and regarding Fund performance its all together different issue and should not be combined with this matter of expenses.

    In long term all funds will perform well whether its of MF or ULIP’s that is all might give atleast 12 % (CAGR) returns.

    Rgs,
    Vinay Sarda

  43. Vinay Sarda says:

    @ ALL

    After all debate I had made conclusion that (may be correct or not that’s one’s choice) :

    When Invested for more then 10 + years ULIP’S ARE BEST. (coz of commitment due to lock-in , Loyalty Additions over long term, Trigger Portfolio Strategy)

    When Investing for less then 10 years Equity MF are Best. (coz they are managable till that time & Higher FMC charges whcih goes upto 2.5 %)

    When Investing for less then 5 years then Balanced MF/ MIP’s are Best. (coz of its Balanced nature and the lesser timeframe)

    When Investing for less then 2 years Fixed Income / Debt Funds are best. (to avoid Equity Market volatility and get sum serious money in the end)

    And last When you have enough knowledge of Equity Markets or Stocks then Direct Investing in Good Large – Midcap Stocks is best. (then why pay charges for any investing products like in ULIP’s or Equity MF’s or to CFP’s )

    –>> When you buy anything Readymade it will be costly whether its any Investment Products or House or Garments or Food Stuff……. but one gets well prepared – variety of the same.

    So ignoring any products is not a right thing , coz all products had its space and usability. (That TIME tells to everybody.) one trailer was in 2008-2009 and other maybe in the offing who knows.

    !!!! HAPPY NEW YEAR TO ALL !!!!
    !!!! HAPPY INVESTING !!!!

    – Vinay Sarda

    1. prabeesh says:

      @vinay

      After all this discussion all you had to say is the same that you said in beginning.The only point you have against MF in long term is FMC charges which can be as high as 2.5% pa.

      Currently in Equity Funds on average FMC is around 2,which you assume to go about 2.5% in future. Fine agreed it might go upto 2.5% not more than that.

      Most of ULIP Equity Funds FMC are in range of 1.5 to 1.75% pa.Which again has the upper limit of 2.5%pa ,what makes you believe in future they will not increase it?

      As @shashank points out there are some excellent use of ULIP if used properly for what its meant ie clubbing Insurance & Investment together. If it is going to be just investment no ULIP can beat MF returns.

      Again as you said everyone has their own views on it.

  44. Vinay Sarda says:

    @ALL,

    The Missing factor while investing in SIP’s of Equity MF is Trigger Portfolio Fund where the amount is automatically invested and adjusted in 75 : 25 % Ratio in Equity : Debt after certain Trigger upside and downside in NAV of pre-defined Fund Allocation, which is very helpful to RealTime Investors. (Except sum 0.5 % FP’s )

    Rgs,
    Vinay

  45. Vinay Sarda says:

    @ ALL,

    As people in INDIA are not accepting the concept of losing money , so they invest in ULIP’s becasue they think of it as long term products for say 10 / 15 / 20 + years. Even if the Stock Market tend to slide they have assurity in mind that in long term it will again pick up like it did in 2-3 years previously. So there is commitment to invest + assurance of mind in the Product.

    ->One has to understand the nature of the each Products , say Term Plans with “no returns” people are now slowly accepting it, as permuim have came down to 70 % (compared to LIC’s Term Plan which was not acceptable to 99.5 % Indians previously).

    ->Endowment vs ULIP’s , people are tending more towards ULIP’s and Child ULIP Plans coz of the Transparency and Retuns the Product have.

    ->MF Schemes / MIP , people are tending towards MIP as investment as it gives more returns then FDs. Like that only people have now started investing in MF schemes through SIP route which give some assurance against losing or eroding money by way of Rupee Cost Averaging theory.

    ->Also there are Mutual Fund Houses whose schemes are not performing well consistently like JM Financial , Princapal , Quantum , Peerless , JP Morgan , Escorts, L & T MF, LIC MF and giving -ve returns for last 3-4 years. (in most of the schemes),

    NOTE – Over and above of the 283 Equity Schemes only 28 Equity Schemes had given more then 8.5 % returns for last 3 years on CAGR basis (that a normal Bank FD’s give) and not only that 147 Equity Schemes had given NEGATIVE Returns for that period even after the Market had touched the previous Highs. And 119 Schemes had given returns of just 1 % to 8 % in that period.

    Out of the above talked Fund Houses majority of them are searching for Partners or want to completely Sell out, even though market are near there highs.

    This all creates lot of confusion, fear & limited assurance in mind of normal or Real life investors when investing in the Equity MF Schemes. The only saviour is the concept of SIP which is gaining momentum nowadays for this MF schemes. (Thankx to INTERNET and ECS).

    So shouting only for “SIP” “SIP” one need to evaulate the nature and returns of the Products which are available and suitable to Normal and Real Life Investors who had habit of Ready-made and fast food system for eating even if its not gud for health.

    In INDIA there is concept of ” JO CHALTA HAI WOH HI BIKTHA HAI” ! (Rest every thing is for SHANA LOG people like us – HA HA HA .)

    MERRY CHIRSTMAS TO ALL.

    –VINAY

    1. Ramesh says:

      People had invested in ULIPs, not because they have a 15 year view. It is because the agents used to shows the “great” excel sheets and put 15-20% in the CAGR and showed them that their 1 lakh per year for 15 years will become 50-75 lakhs. (They forgot to tell you that these returns are not sustainable for such long periods, plus the large amount of charges in the initial 3 years). Thats the reason, IRDA had to compulsorily tell them only a 6 and 10% return scenario. Plus loads of other benefits – only 3 year lock-in, no need to put more money, etc, etc.
      After 3 years, the same person would come with another ULIP and ask you to surrender the previous ULIP because it has not performed well, or because the IRDA has changed rules and decreased the FMC or some other reason (the real reason commission).

      Why would a person have faith in the markets, if he has got a ULIP and not when he has started a SIP? I fail to understand that. Even in badly performing MF (you have mentioned point-to-point returns), a SIP would have fetched better than FD returns. Out of the 283 schemes, I will be amazed if even 10 schemes do not give better than 8% return, that too tax-free. 🙂

      A normal / real-life Indian “investor” does not invest in equities at all. He will invest in FD or in gold or real estate or even in “get rich quick” schemes or chit funds. 😉

      Also in future, endowment plans will make a comeback. Because that will be the only scheme with relatively large commission. As far as I know.

      Ramesh

  46. shashank kashettiwar says:

    It is not that people in India do not like to earn. The money lying in the savings accounts is because people in India DO NOT LIKE TO LOSE. They are satisfied with lower or no returns but just hate or dread the possibility of reduction in the corpus/capital in hand. And so savings a/c, FDs, various RDs and postal schemes are first choice investments. Do they even want to invest in debt MFs leave alone the equity MFs? A big NO. ULIPs and the ULIP agents- for the commissions and a possibility to make a livelihood out of such salesmanship- have been able to ‘entice’ these type of persons out of their safety cocoon of the FD’s and NSC’s and procure big big investments for the stock markets which have helped the stock markets’ buoyancy and the increase in the influence of DII in comparision with FII.
    The ‘enticing’ would never have worked had it been a split product like term+MF combo. Because these same FD loving people also don’t like ‘no return’ products like level term plans. So even if it is considered that this is a better ‘returns’ generating strategy still will the person drink this supposedly healthy mix? Because it is containing two obnoxious elements of ‘no money’ if outlived or in between and the second element with the risk of money/corpus reduction threat which is a total undigestible concept to the Indian palate. Even though people save so heavily in the mass affluent class-urban and rural-(30-60% of income), that doesn’t result in taking any sensible bold steps in investing in equities and absorping a temporary/short term loss. Rather they wouldn’t like to see even for a moment any value erosion in this big capital.
    Such a tough attitude customer was willing to put money through ULIPs because-
    1) No separation of investment and insurance leads to kind of diluting the -ve perceptions in their mind about both the concepts.( no returns and volatility)
    2) The cocoon of safety sought through safe investments was being shown in form of small covers being thrown in and
    3)The child education need bogey- an emotional play ,where you don’t have to ‘sell’, the customer is keen to ‘buy’- with so many attractive and effective riders being built in the insurance product- the security creator.

    So overall has there been any loss of any entity in the whole transaction? No, everyone is happy- the agent, the customer with more returns than FD and so much else, the insurers and the employees, the stock markets and related individuals, the government. Every one has moved ahead than where they were. Its a win win for everyone.

    So comparing these child plan ulips’ fund performance with best performing mutual funds can be an academic exercise but nothing more than that. Because these investors would probably never have made those equity investments in the first place.

    But I have one even more basic question. Why are the people who have researched and compared the data of returns of the equity funds and ulip funds are showing this data so gleefully(including Vivek Kaul). As if they have won some intellectual battle! Because this is a aberration, an anamoly which should not happen in the practice and the reasons why this has happened are more important to be known.
    The fund managers are a small pool of individuals with similar skills supported through research and tools. Many a times the same parent organisation is operating in the MF and insurance sector as well . So wouldn’t try to cannabalise a product. Has this happened because the insurance business was growing by leaps and bounds and as such fund management was becoming difficult resulting in lower performance across the whole insurance industry? If that is the case then in future we may see the role reversal. Because the push of agents for ulips is going down , so more stable funds would allow the fund managers to deliver better than the mf counterparts in future? So the trend may reverse!
    Products are neutral. They can be good, bad or ugly for a particular situation based on their placement in a portfolio. So the role of the advisor is more crucial.

    1. Ramesh says:

      Because of financial illiteracy that is rampant, this has happened. For FD lovers, the highest NAV guarantee product and other capital protection products are still better!! 😉 But please do not try to imply that these products are the best investment products.

      The role of financial planner/advisor is very important. As is the importance of this site and other similar sites!

      There may be anomaly in the performances of equity ULIP and equity MF. Even if it is the same, there is one more small point in the NAV calculations. The FMC is included in both the NAVs. So even if the funds had performed or will perform same in future, the cancellation of units by virtue of ever increasing mortality charges and policy admin charges will always decrease the investment value of a ULIP.

      The whole point of this discussion is that MF is way better than ULIPs for investment. Whether they have performed in this manner is another aspect, which they have done actually also.

      “Do not like to lose” = inflation of an avg of 9% always decreases the purchasing power of the money. Whether the common/majority of public knows that or not does not change this fact.

      Without commissions, the ULIPs will not be sold so aggressively (except by people who plan it either themselves or by their FP).

      MF NFOs have and will be sold very aggressively to the public. Only after SEBI has changed to rules for NFO have they decreased in number.

      Most of the agents sell the products only for the commission and are not bothered whether that has any importance or usefulness for the buyer. After the mandatory lock-in, they come again to churn it. That many people have benefitted from these 3-year ULIPs (better than FD, yes) is another anomaly!!

      Ramesh

  47. Ramesh says:

    @Vinay

    Yes, each product has got advantages and disadvantages. But it is best to have as much knowledge to gain the maximum out of it.

    For combination of insurance-cum-investment, there can be a case to put some amount in the ULIP. But for me, there is no point at all to put money in ULIP as a pure investment with any extra benefits, whether tax saving or any other known/unknown benefits.

    Since you agree that neither MF nor ULIP are for charity, why are you trying to imply that it was the Insurance companies that were supporting the market! Then why are the returns of the insurance companies worse than that of MF over short and long terms.

    Excel sheet calculations are not worth for real life conditions. Because life is not linear! If you can put randomization into the calculations (like the Monte Carlo calculator does), then it is better but still not life-like!!

    Before and even now, the opportunity costs that a Ulip has got in it make it prohibitive to use it as a “pure” investment option.

    To summarise, an average ULIP as an equity fund has been severely underperforming the benchmark as well the average equity MF, and then it had actually done quite a “large” (40% versus 2.25%) front loading, then deduct mortality charges and policy admin charges to leave you with still a better than FD return!! The average actual return from equity ULIPs have been pathetic to say the least as compared to average equity MF return and there is no reason this should not persist in future as well!

    A good financial plan will both save money and then get good returns out of it over a long term!

    As far as your last statement is concerned. In India, people do not like to earn!! Evidence is amount of money in equities as compared to that in savings account!

    Ramesh

  48. Vinay Sarda says:

    @ ALL

    SIP System / ULIP plans had started gaining momentum only after 2005 all is well when Stock market is well.

    Nobody is here for charity whether its MF or ULIP.

    Its one choice to compare & choose the products, but writing off any products is not good Financial Planning. Each products had its worthiness whether its Insurance Term Plans , Equity MF, MIP, Bank FD’s , PPF or Child Plan or ULIP’s

    For last 18 months it was Insurance companies who buying in the markets when they were going down. And it was coz ULIP’s money that was possible and it was reverse for Equity MF’s they were Selling the same in the market as per Data.

    And denying the excel sheet comparison is not right Financial Planning.
    In Financial Planning Money saved is Money earned. (By way of Tax Benefits or anything else). This is INDIA people like to save , invest & earn.

    Rgs,
    Vinay

  49. Vinay Sarda says:

    @Ramesh / Moneysavingshelp,

    The main issue is not to compare the Term Plans vs ULIP’s its MF vs ULIP’s with some of the Additional Advantage/Riders ULIP’s have (with Nominal charges). Apart from that ULIP’s will have more money in coming years that is gud for ULIP’s and we wil see the results in coming years, any investment products need sum time . Coz of Loyalty Additions and lower FMC charges compared to Equity MF’s the ULIP fetches more return.
    Look for Bajaj Allianz Funds, HDFC Funds, ICICI Funds. most of them are giving 25% + returns on CAGR which have launched before year 2003. (Look in Magazine “Investors India” for comparison) .

    People sitting here are talking of SIP’s returns in Equity MF’s pls compare from 1996 to 2003 returns when Stock markets did not do well. What happens to SIP’s in 2008 and 2009 we all know people stop investing and making life more miserable for Fund manager in Equity MF’s but the ULIP Plans gives the commitment to be invested coz it looked for Long term Horizon. (also the Lock in Period gives indirect Advantge to Investors in ULIP Plans)

    Look ULIP’s as Investment Plan with Insurance Benefits as Additinal advantage.
    Term Plans are best Insurance products.
    But to Write Off the ULIP’s in Financial Planing is just a bad option it can be as Investment Idea.

    Again there are not more 0.05 % Financial Planners in INDIA. (who can manage there own Money what about REST) !!!!

    Rgs,
    Vinay Sarda

    1. Ramesh says:

      @Vinay

      There are some serious reservations in your statements. My views:
      1. You have rightly pointed out that for insurance, term policy is the best. (In discussion of other question, the point is whether as a twin goals of insurance and investment, a MF+term is better or a ULIP.) In my view, if you want to compare a ULIP vs MF for “pure” investment purpose, then there is no question that MF (not ULIP with all additional benefits,etc) win hands down because there aint any nominal charges in a ULIP.
      2. I agree investment products need time. But how much time is an important question too. You have mentioned the magazine, and I saw it too. There are some glaring problems there too. Most of the funds (over 70-80%) given there have been for a short time, and many have been launched in July 2010. Why? What happened to previous funds? Looks like some kind of significant modification has occurred! I cannot find out.
      3. Why should ULIPs have more money in future? From the IRDA site, there is data which says that lots and lots of policies (whether ULIPs or others, not specified) are being surrendered. And with the recent media blitz of shunning down ULIPs, in my view there will be problems in getting the same kind of money/response in ULIPs. In my view, the MF will get disproportionately more money than ULIPs.
      4. Bad market. Why do you think a bear market will hurt MF and help ULIP. As a group, both will be hurt because of investor behavior.
      5. Compare returns from 1996-2003. With what? There were only a few ULIPs (I think IPru was the first in about 2000 or so). With their respective benchmarks. yes, please compare it. If an average MF performs better than its benchmark (overall, it can have +25% or -10% return) then it should be good enough. If the markets are bearish, whether it is a portfolio of MF or a ULIP, both will suffer.
      6. Lock-in are not necessarily better. You can compare the returns of ELSS (3 year lock-in). Over last 5 years (2 bull and 1 bear), they have been underperformed only by Equity (Mid and small cap) and Equity technology funds. Point to ponder. I think same should be happening with ULIPs. Even with lock-in, there is always the option of switch in ULIPs! Switching results in the same kind of problems for the fund manager.
      7. Most of the ULIPs charge 1.35% in the newer regime, whether it is an index fund (normal index fund MF charge 0.5-1.0%) or even bond funds. The normal non-ULIP MF charge differently. But the caveat is, they can increase these charges to 2.5% in future (with permission of IRDA and after telling the investor). Also the policy admin charges can also be increased. What has to be done then. Get into MF then!!
      8. With the removal of initial loading for MF, there is no point in having an investment product which is “blurred” and not transparent, and have premium allocation charge. (Only for high amounts do ULIPs offer 0% PAC and that too from 6th year onwards).
      9. Loyalty additions. Yes, if you can remain in a ULIP for 11 years and do regular premiums, then you will get loyalty additions on your regular premium fund value (not on the top-ups). Well, even Fidelity equity fund gave 2% loyalty bonus to its investors, who have invested in it since inception (how many?). And in future after 10 years, I can safely say that there will be lot more loyalty bonuses!!!! 🙂

      Ramesh

      1. Vinay Sarda says:

        @ Ramesh,

        Thanks for all your views but why the IRR have so much difference. MANISH had asked be before in forum that compare this in excel sheet so I had done that.

        And also you had talked about FMC charges of Fidilety Equity Fund then I would have taken LIC ULIP that charge only 0.80 % .

        What I had done is taken the Industry average of FMC in both ULIP & MF. (All comparsion had been done on parity)

        You will be stunned to see the Figures of FY 2010-2011 how much amount had gone into MF Schemes and ULIP’s.

        Also Insurance Plans are going to stay here so out of them ULIP’s are the best (apart from Term Plans)

        Also the Tax benefit make the Returns more attractive, which in the Equity Funds only ELSS funds have.

        Rgs,
        Vinay Sarda

        1. Ramesh says:

          @Vinay

          There is so much difference because excel sheet calculations do not work in life. There are too many variables there. Any such calculations, whether retrospective or prospective will always have problems. 🙂

          You have mentioned the LIC ULIP FMC of 0.8%. As far as I know, that FMC is for a mixed fund (max 40% equity) and not for a pure equity fund! For a mixed fund, it is better to have NPS (almost nil FMC!). Again not a ULIP.

          This is a post regarding the performance of equity ULIP and equity MF over 5 years.
          http://www.dnaindia.com/blogs/post.php?postid=264

          Try projecting these returns over next 20-30 years. Easy in excel but is it practically possible?

          Regarding your rightly pointed out mention of money going into MF and ULIPs. That is because of the commission generation. We will see what happens when ULIP commissions have been decreased and will probably be decreased to zero in 1-2 years.

          Another post regarding the same phenomenon.
          http://www.dnaindia.com/blogs/post.php?postid=282

          Tax benefits should not be considered in calculating the return potential. Different people have different tax rates, so then you are not comparing apples with apples. Try applying the same to ELSS then (the performance of average ELSS is also much superior to the equity ULIPs, + add the dividend payout option to ELSS).
          A real life eg. sundaram taxsaver (dividend payout) which had got a NAV of about 12.5 had announced a 15% (Rs 1.5) recently. So for a person in 30% tax bracket, if he invests Rs. 1 lakh in it 2 days before the dividend payout day, he will get 42000 (he saved 30000 + tax free dividend of 12000). So 42% return in 2 days!! What if he invests them in pure equity funds. What will be the final return!

          There is still no clarity about the tax status of either ULIPs or ELSS in DTC. In my view, tax saving should be a secondary/tertiary concern in planning an investment.

          Ramesh

        2. consultantgeo says:

          Hi vinay, why do you compare fmc charge of fidelity and lic ulip, huge difference between the two, if i want to invest for investment purpose, i would certainly invest in fidelity, as they are the best in fund management, they follow a process, today if a person wants to make money he has to think long term, and as a financial planner , if your client does not invest according to a plan or a goal, then the same agent who has sold you ulip will come to you after five years and sell you another ulip, this is happening in india in large number. so fmc is importnant, but for me returns are importnant, i am ready to pay more fmc if i get good returns, lic funds have not performed and most of them have not beaten benchmark, so what use of .80fmc., there are ulips which are good, like icici prudential ace, but icici does not themself promote the product, i came to know from outlook money magazine.

          geo

    1. prabeesh says:

      FMC is inclusive of Service tax… so it doesn’t make sense to include it in the excel sheet,,it will add up good amount…

      One reason for me not choosing ULIP is flexibility…i make a decision and later i find it wrong….im stuck…no easy way out….i have seen many people having problem with this point

    2. Ramesh says:

      The given spreadsheet has a few problems in the MF calculations. There should not be any transaction charges as well as rightly pointed by @Prabeesh, no separate service tax!.

      Also, since I have the flexibility to choose, I would invest 30% in an index fund (like IDFC Nifty which charges 0.25% per annum) and 70% in quantum long term equity fund (1.5%).

      Look there goes your 1.35% per annum charging inflexible fund in the trash bin. It just cannot beat this with any kind of benefits for investment!! 😉

      Ramesh

    3. Vinay Sarda says:

      @ Nikhil

      Thankx for listing the Excel Sheet for ALL.

      Vinay Sarda

  50. shashank kashettiwar says:

    @Ramesh
    Creating a child plan comparison with term+MF combo is not so easy, I think. In a child plan apart from the basic cover , there are two more built in riders working. One is the waiver of premium in case the payor i.e. parent dies or becomes totally disabled. There is a second rider at work called variously named as income benefit rider/family income rider. This rider pays a fixed % of the SA as income to the family every year. Getting level premium values for these two riders and factoring in the term+MF combo scenario will be necessary to make the comparison in a correct way.

    shashank

  51. Nikhil Parchure says:

    I have got the excel from Vinay and see why Vinay is claiming that “Why not child plan ?” but I would like hear from the MF side of people also

    Vinay, I would want you to send the excel to the MF siding people and than discuss on this.

    Ramesh & MoneySavingshelp did you receive the excel which Vinay has prepared

    Nikhil

    1. Ramesh says:

      @Nikhil,
      If you have a google account, you can use the google documents and make the spreadsheet public. That way, we can see and analyse it. Also, you can upload if you have hotmail/live account through skydrive.
      By the way, just posted 2 links for ULIP vs MF-Term. Check it out also.

      Ramesh

      1. Nikhil Parchure says:

        Here is the link of what Vinay has send…

        https://spreadsheets.google.com/ccc?key=0Ate2EJJkS4J1dGdkVHpVZVVDMVRwUFpnOWtDakdNd2c&hl=en

        Thanks..We would like to discuss on analysis Vinay has done

  52. Ramesh says:

    I hope the policy administration charges (whether fixed amount or fixed percentages) have also been incorporated!

    Ramesh

  53. Nikhil Parchure says:

    Vinay,

    Can you please have your excel calculation forwarded to my ID ?
    nikhilparchure@yahoo.com

    Thanks
    Regards
    Nikhil Parchure

    1. Vinay Sarda says:

      Hi,

      Will send the excel sheet in 1 or 2 days…

      This is once again to highlight the charges of both Investment Items and there Returns over the longer period of time. In which sum ULIP’s tend fetch more returns then Equity MF Schemes. “FMC charges @ 1.35 % All Incl in ULIP’s and 2.5 % All Incl in Equity MF Schemes” you will see the difference itself ?

      Rgs,
      Vinay Sarda

      1. Please add mortality charges, service tax+cess on FMC. Also, since this is the question of child plan, where generally parents need money when their child attains age 18, so please give illustration till this age.

        InvestmentKit.com

  54. Ramesh Mangal says:

    In the above discussion, I would like to add the following excellent reviews of ULIPs (including the Child Plans).

    http://money.outlookindia.com/article.aspx?268136

    How after Sept 1, inspite of the cap over the charges of newer ULIPs, the yield of ULIPs have actually gone down!!

    reference: http://money.outlookindia.com/article.aspx?268134

    Ramesh

  55. Vinay,

    Plz share the excelsheet or send it to me at jagoexcel.3.rajgarg@spamgourmet.com

  56. Vinay Sarda says:

    Hi,
    Krishna

    So you I seen the maths of Calculation for Investment returns in the Long term. Nothing comes for free whether its MF Schemes or ULIP Plans.
    Its only the latter one which lower the Charges due to its long term commitment & gives some loyalty bonus and additions for that which enhances the overall returns.

    Rgs,
    Vinay Sarda

  57. Vinay Sarda says:

    Hi All,

    The Basic thing here was to highlight FMC of MF schemes which all us are ignoring and goes upto 2.50 % , this out of Fund Value and not from Premium. Say my Fund value reaches 20 Lacs in 10 years, so the FMC in MF Schemes will come to 40,000/- if calculated @ 2 % . (Average for MF Schemes). The same will cum to 29,600/- in ULIP @ 1.48 % . The difference is gud Amount . This difference covers all the expenses in ULIP Plans when calculated in compounding in Excel Sheet. Everything sholud be calculated according to Net Yield of the products in the Long Term.

    As far as Term Plan is concerned it should be made compulsory for every Tax Paying Indian Citizen . (That too 10 times of the Income mentioned in the Tax Returns) .

    Happy Investing !!!

    1. Krishna says:

      Great Clarification on both!

      Vinay, I would be interested in getting the excel sheet for comparison!
      Could you share it please on rupkrishna@gmail.com?

      Krishna

  58. Vinay Sarda says:

    Hello MoneySavingsHelp,

    As per your recommendations I had compared my ICICI ACE Ulip Plan and Equity SIP’s which I had taken for 25 years from ICICI Direct (which they charge minimum of Rs.30 or 1.5 % per SIP per Month). I had taken SIP for Amounting Rs. 2000. After deducting All charges and Loyalty Additions on Assuming 12 % returns on both, I get (Net Yield) for 10.75 % on ICICI Ace ULIP and 9.75 % on my SIP’s. I had done it in Excel Sheet.

    If we take Tax saving amount in above (which sadly is available only in ULIP) Net Yield after tax adjustment will be around 12.75 % (Approx). I had seen 3 % gap in above comparison .

    This was even after I had taken FMC in MF @ 2 % (average rate among all MF Schemes) and not 2.5 %. And had seen ULIP much ahead in returns…. I can send the Excel Sheet on Email of yours , if provided.

    This is all coz of Higher FMC … even 0.75 % or 1 % makes lot difference, this difference covers all the expenses of the ULIP which they charge in initial years.

    Nothing comes for Free my dear fellows whether its ULIP Plan or MF Schemes (where Fund Managers are paid in crores + Bonuses)…… And in my life time I had never met anyone with Equity SIP’s for 15 years 😉

    HAPPy INVESTINg… ()

    1. raja rakesh says:

      great contest.

      well played both vinay and money savings.

      but i will vote for mf+insurance,because they are plain vanilla products and nothing to cover.

      remember, iam a ulip holder unfortunately and luckily a mf investor.

      but i feel that ulips got little better from sep1.un fotunately i bougt a ulip from my first pay cheque in april 2009.

      thanks

  59. Few points:

    1. It’s not difficult to take decision to invest for long-term in equity mutual funds. You don’t have to convince anyone; just convince yourself. Control your emotions, continue investing and stay invested.
    I know many people who are investing in MF’s since 1995 via SIP.

    2. It’s not the difference of 1%-2% returns. First of all, the returns are ULIP funds are less as compared to equity mutual funds. Even after that, the actual returns to customer will be less after deductions of units on account of premium allocation charges, mortality charges, policy admin charges, service tax etc.

    generally, In India, people ask for “profit” & “return” while investing & they do not ask for features of ULIP’s before investing.

    To conclude, I suggest you to look at your personal portfolio of ULIP’s & MF’s (if any) and compare the results yourself. You’ll get to know all answers.

    Hope it will help you.
    MoneySavingsHelp

  60. Vinay Sarda says:

    MoneySavingsHelp

    Sir, Point taken….. but to be discpilned in Equity SIP for longer term say 20-25 years is sum what unrealistic and non-practical….. Equity SIP’s does not give compulsion & comfort of Investing. Like we do in Premium Payments of Insurance cum Saving Plans. Even if someone gets 1-2 % lesser on invested amount. To convince for Equity SIP’s for 20+ years investing is like eating iron nuts .

    Last but not the least Investment Decision are taken in India by “Nature” of the products and not the “Returns” of the same.

  61. Just wanted to clear one point. I’ve just gone through KIM of equity mutual funds. The annual recurring expenses (max. 2.5%) is INCLUSIVE of service tax.

    Hope it will help you.
    MoneySavingshelp

  62. Hello Vinay,

    Yes, service tax is also on fees charges by mutual fund company.

    But there are few major points which an investor should consider.

    1. Mutual fund does not charge premium allocation charges. It’s a HUGE amount. Till last year, companies were charging service tax on PAC & policy admin charges also. It’s only from this year, that service tax has been removed.

    2. Even if some companies, are returning back the charges in the form of “loyalty bonus”, the compound interest of the money, which could have been invested WITHOUT charges, will be MUCH more than that.

    3. Policy Admin charges of Rs.720/- p.a. ONLY could become 6% p.a. or 3% p.a. if your premium is Rs.12,000 or Rs.24,00 p.a. respectively. So, you can not use the word “ONLY” here.

    4. Calculation of IRR is not difficult. Any one can imagine the net profit & loss by simple calculations. Comparing low premium by companies like ICICI Pru or Ageon Religare and investing balance amount in equity diversified mutual funds like Reliance regular savings -equity etc. is a better option as far as PROFIT is concerned.

    5. Last but the least, I’m again repeating here, I’m not against child plan. If you’re a disciplined investor, go for mutual funds. And if you’re not, go for Child plan.

    Hope it will help you.
    MoneySavingsHelp

  63. Vinay Sarda says:

    DEAR , MoneySavingsHelp

    -> One point 10.3 % service tax will also be applicable on FMC of MF Schemes. Also Equity MF Schemes does not have Tax Benefits (except ELSS Fund) 🙁

    Money saved is Money Earned is the Basic Common Formula for Investment.

    Just give me the IRR (Net Rate of Returns) for the Combo(MF Schemes + Term Plan Premiums) assuming the returns of 12 % for 25 years with Annual Investment of Rs. 50,000. for Age 30.

    There are very few ULIP’s to compare as of now . Waiting for more New ULIP’s Plans in the offing when the “Great Indian Tax Saving” Periods starts from December .

    Prior to Sept 1 “ICICI Pru ACE ULIP” was best one with Seven Fund options to choose from. No PAC from First Year itslef there after 5 years PAC would have added 2 % Annually i,e. 102 % Allocation . Apart from that 2.5 % Loyalty Additions of the Fund value every 5 years Starting from 10 th Year. With only 720/- (Fixed) Policy Admin Charges per year & 1.35 % FMC charges.
    The IRR come at 10.77 % with Tax Benefits it comes to 12.73 %.

    And in Child ULIP “Aviva New Young Scholar” Plan was the best one with all benefits & charges Net IRR comes to 11.20 % with Tax benefits its 13.01 %

    Its all ok 1-2 % here and there the Main Issue was to Highlight the Child Plan Benefits in Longer Term. And Why Not to keep it in Financial Portfolio.

    AFTER ALL INVESTMENT GOES TO EQUITY MARKETS WHETHER ITS MF SCHEMES OR ULIP PLANS.

    VINAY SARDA

    1. consultantgeo says:

      Hi every body, why can”t we make the investment simpler, why are we fighting on this small topic, child plan is basically an emotional product which every parent would fall to, and agent knows this as well the insurance company, the agent gets anywhere between 12 to 40% commission, depending on companies, and most of it is sold from december to march during tax season, like manish said in his earlier article. my question is , lets make investment simpler and let the client know what is beneficial, why talk on IRR, excell, why not give a term plan which would protect his future income, now term plan comes cheap online, and lets park our money in mutual fund, where i would be running the product not the comapny, and if i do sip in good funds (largecap) , i can easily get 12 to 15% return, more ever i run the product, emergencies i can withdraw or i can do top up, as i know my entire money is invested. so friends i would want to keep my clients investment simple and understandable.

  64. Gaurav says:

    As “jagrut” investors, we all should stop proposing or being against a plan simply based on the broad category it is under. Do not be for or against a scheme because it is classified as child plan, ULIP, Mutual fund, term insurance etc. Do some simple calculations in excel based on what you put in and what you expect to get out and compare the results against another plan.

    For example, compare Child ULIP v/s MF+term insurance over a number of years and see what the results look like and if they look like to determine the best benefit.

    You may want to leave specific instructions in your will about how you want the proceeds to be handled to take the load away from the guardian.

  65. Vinay Sarda

    I take your points . but mortality charges are there in ULIP also . You have not shown any comparision cost wise to show that ULIP’s fare better than term + MF. take two cases each and how the final corpus , I am sure you have something to surprise us 🙂

    Manish

  66. Vinay Sarda says:

    Hi,
    All “Financial Planners” , why you all oppose so much for Child ULIP plans. Does any Equity MF offer cover if Parents die to there Childerns. Apart from that they Pay all the future Premuims (its ok that they charge for the same but that is miniscule amount), which are Allocated in right way in Stock Markets in absence of parents which is the main benefit in CHILD ULIP PLAN. There various type of Options Like P/E fund , Trigger Portfolio Strategy which helps from Ups / Downs of the Stock market. And fetch better Returns from the investment. (No Equity MF gives this benefits).

    All Ulips charges not more then 1.35 % FMC (LIC charge only 0.80 % ) and taking all other charges & loyalty additions + bonuses combined it will not be more then 1.5 % .

    When you take Term Plans there is morality rates + service tax, + MF Scheme charges FMC @ much higher rates 1.75 % to 2.50 % according to fund size. Yes ULIP’s charge Premium Allocation charges which can be subsumed in the long term say 10+ years .
    Coz of low FMC @ 0.80 % to 1.35 %.

    In India nobody had time to evalute the Equity MF Schemes periodically for longer term except CFP’s, let it leave for professionals to do that. And that too expect from a childern or a Gaurdian to do after parent’s death is very stupid. This is where a Child Plan is effective.

    Even if Amount recd from Term Insurance after parent’s death, the Gaurdian will surely keep it in Bank FD’s or Gold for low risk and hence will get low returns. Becasue nobody at that time or after that will be able to take risk like the Parents might have did for there childerns. So A child ULIP Plan will be effective because it will make most of the premiums in the Equity Markets which will earn better returns then that of Inflation…

    When you are there its Financial Planning & When Not its Child Planning thats what a Child ULIP plan will do for you.

    THINK PERSONALLY WITH FINANCIAILLY… after all its for future !!!!
    HAPPY INVESTING.

    1. Just 2 add few points here.
      Various options like trigger facility is also provided by mutual funds – ICICI Pru, Reliance MF etc. You can confirm from them.

      Here you’re wrong by saying all charges combine in ULIP will not be more than 1.5%. I give you one small example. If I’m investing Rs.1000/- per month in SIP in any ULIP. I need to pay at least 10% premium allocation charges + Rs.60 per month as policy admin charges.

      10% PAC = Rs.1200
      Policy Admin Charges = Rs.60 x 12 = 720 i.e. 6% of my premium
      So, total is Rs.16% p.a. (at least in initial 5 years). It may be little more or less in different ULIP’s

      Mortality charges are huge in ULIP as compared to term insurance

      Next, you didn’t consider service tax on FMC in ULIP. So, it is not 1.35%, it is 1.48%

      Lastly, AMFI / SEBI allows mutual funds AMC to charge upto 2.5% of AUM as expense ratio, which is equivalent to FMC of ULIP’s. But if you see the fact-sheet of the mutual fund companies, most of the well-performing mutual funds are charging not more than 2% of AUM as FMC.

      I hope the above figures will make things more clearly.

      Last, but not the least, I’m not against child plans. The basic purpose of my discussions here is to highlight that one must consider the charges of ULIP’s before signing the application. There were some good child plans / ULIP in the market before 1st Sep 2010, which were charging low charges or with some extra benefits. There may be some more now also, or may be in future. But look carefully before you buy any ULIP.

    2. consultantgeo says:

      Hi vinay, any good planner, who knows what is good for the client will not recommend child paln, he need not be a financial planner, they are not a rare breed, they have cleared CFP exam, they got a certification like doctorate degree but not all doctor are good, any way the client has to decide, my point is unitlink child plan has been there for the last 10 years, but most of the returns compared with mutual fund ( large cap funds) is too less, i am not talking about the charge they take during the initial years, i am talking about the invested amount. i compared most of the child plan, i better take a term plan online and put the balance amount in mutual fund or index fund, as i can see my returns on mutual sip, even if i am not there, i wont require WOP rider, as my insurance amount kept in fixed deposit will take care of all the goals, lets keep it simple.

    3. Yes, Vinay Sarda, Mutual Funds too give Lumpsum on Parents death in schemes like the Birla Century SIP.
      And, yes, there are schemes like RELIANCE SIP INSURE which continue to invest in the future sips on the Parents death.

  67. Vinay

    The best thing would be that you show us why cost wise ULIP;s are better for a person who has no idea of how market works and how to change from equity to debt and vice versa at the right time , compare it with MF+ Term . Show us if its value for money for the convinience it provides .

    I agree with Moneysavingtips that its too much price to pay for that one single convinience .

    Manish

  68. if it allocates premium in the absence of parents, it charges too much for that day one. This comes under premium waiver benefit charges. Apart from that, they will deduct premium allocation charges, policy admin charges, mortality charges, fund management charges + service tax + cess. Is there any logic in paying such HUGE amount just for one benefit.

    You can otherwise take term insurance instead of paying them charges, & invest the rest in MF. This way, you can create wealth also.

    Take any child plan & compare all the figures yourself.

    Hope it will help you.
    MoneySavingsHelp

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