I have attempted a proper comparison between a ULIP and a MF-term combo for investment cum insurance requirements in present circumstances.
Raw data used:
Two ICICI Pru Life time premier illustrations sent by Shashank (thanks to him).
1. Converted the LTP illustrations into the proper spreadsheet system, and calculated the actual percentages used by the company.
2. Then, reversed the percentages with appropriate yearly conversion factors. Eg. the FMC of 1.35% worked out to be 1.28-1.29% (about 5% lower).
3. I found the yearly S&P500 and Nikkei 225 returns since 70 years ago. Then tried to put those returns instead of the “senseless & impractical” 6 and 10% scenarios.
4. Did the two calculations inside the workbook, and in the corresponding final sheets, you can change the returns,MF FMC and see the result between the two!
5. Kept the MF FMC at 2% (actual calculations are with 1.95, same reduction of 5% as ULIP MF).
6. Used the term insurance of Kotak preferred plan (the cheapest and quite reasonable offline plan).
7. No increase in FMC or other charges of ULIP have been considered, which actually will decrease the returns.
The final sheet is provided at
http://bit.ly/gikfBo
My final thoughts:
1. I still believe that the term+MF has a slight edge over the ULIPs. That is very reasonable because that amount of discipline should fetch some “extra” return.
2. The MF still provide better flexibility and choice. (though not in the usual manner, of chopping and chasing the highest return of the “best” funds).
3. ULIPs perform about 3% lower, but offer more automation at present rates.
4. With the newer DTC, MF+term will continue to get the same treatment, while the ULIPs will suffer. I will wait for that to be clarified.
More thoughts are welcome.
Hope this helps.
Ramesh.