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POSTED BY ON October 31, 2010 9:24 pm COMMENTS (7)
My friend has a ULIP policy (ICICI Pru LifeStage RP) ,just like many he was also mis sold by an agent. He asked me how to benefit from it? I checked the Policy and it has taken up enough charges with front load and there are no surrender charges after 5 years.
Since he started the policy in 2008 june .His investment amount has given a good return of around 48% CAGR for 2 years.I told him since most of the charges are already paid by him to continue with the policy.The Policy Term is 10 years.
I told him about switching and he asked me for suggestion to switch,Since the stock market are Hot now i suggested to move his money to Debt instruments. Then wait for some more time if market corrects then he can again move back to Equity related fund.
What do you people suggest?
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After all the explanation to my friend he choose to go with
Preserver Fund which has Equity 50-100% and Debt 0-50%.
He put 80% in this fund and rest 20% in Debt Fund.
Have told him to see for another 2-3 months and based on market to move back to Nifty Scrips based Funds.
It’s a right decision to continue this policy now as he has already paid major charges. As far as switching is concerned, there is a simple way to decide that.
What is normal expectation of return p.a. from ULIP? 15% – 20% p.a.
Let’s imagine you’re comfortable with 16% p.a. When your portfolio is up by 10% over and above 16%, shift that profit in debt fund. Do that again if it increases further by 10% and so on.
This way you’re getting your target amount of profit & making extra reserve to average your portfolio when sensex crashes again.
Hope it will help you.
InvestmentKit.com
Prabeesh,
Why are you saying the agent has missold your friend? Is it just because it is a ULIP? I don’t want to comment on the advice you and Manish are endorsing here with respect to timing the market but would like to point out some other aspects. If you can rectify these, the pinch of being missold would probably lessen substantially.
In this product there is a feature which creates asset allocation between equity and debt based on age of a person. A fair feature for a passive person or the one who doesn’t want to or can’t make decision regarding asset allocation and timing the market.
More important factors of misselling in your friends case are 1) a low tenure of just 10 years which he can’t extend even if he wishes so . The agent would have earned the same commission even if he had proposed a longer duration tenure. 2) probably a very low premium multiplier of @5 times as death cover. Because of this the fixed cost get spread over a low cover and cost per lakh of cover shoots up very high.
The first point cannot be rectified but something substantial can be done about second point.
The action which I would suggest is to increase the cover to the maximum premium multiplier at the next policy anniversary ( you have to apply a month before policy anniversary and undergo a medical). I guess your friend is young @ 30yrs. For this age he can have a premium multiplier of @60-70 times as death benefit. The mortality charges are lesser than an equivalent cover level term plan for similar tenure. ( For the longer tenures they are much less as compared to level premiums)
I agree with Shashank on the point that it might not just be misselling , if there is anything called misselling , then there is mis-buying also
In my earliar comment, my main concentration was that considering its more of misselling from agent side and buyer is ready to close it and buy equity MF , better to have your expectations fair enough and not expect too much ..
Manish
shashank
I agree timing market might not be correct but precaution of not loosing much was his(my friends) concern.
I can surely say he was mis-sold this policy because he got to know only after i said it is a ULIP and his money is in stock market ,agent did not inform him even about it being ULIP i doubt he might know what is switching
I dont know how good it is if he increases SA within this policy
What Manish said is right. I personally has a investment in the same ulip.
What I personally do, is to watch the markets and accordingly switch to Debt/Equity funds.
I found it very useful, However requires much patience and tracking the market.
If the investor can do that, he can draw the best results.
Prabeesh
Yes , you have suggested him in right direction , however whats required is patience and right attitude towards this whole long term equity concept , otherwise he will get frustrated seeing markets still going up and up in next some months and he might feel very bad of taking this decision .
What he has to understand is that he is minimizing risk right now and not trying for huge returns ..
So with right understanding or equity and debt and how it works in different time frame , the decision of moving all money in debt looks great to me , but at the same time he should have guts to move the money to equity again after markets cools off..
This all requires patience and right attitude and lots of behavioural control 🙂 tough to do 🙂
Manish