POSTED BY April 27, 2012 12:22 am COMMENTS (6)ON
As we have seen more questions in this forum regarding the ulip and mutual funds
I have seen one article which is actually conveying the reverse what i thought till now regarding ulip and mf
Experts Pls comment on this.
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6 replies on this article “ULIP VS MF”
Dear Vignesh, From the article itself, the break even point of ULIP comes around 10Y. Now instead of calculating on future assumptions, please check the performance of IPru Life’s Maximiser fund (launched in Nov 2011, so it’s more than 10Y old now & one of the oldest fund in business) against any good consistent performer from MFs like HDFC Top 200, Franklin India Bluechip, HDFC Eq., Rel. Vision……………..
Please check the performance on your own & post your comments back in this discussion.
the article is good and overall its based on assumption . It very much depends on how you handle the ULIP , if you are just going to buy and hold and not going to use switching options in ULIP , then its not going to be any better than MF .
For the sake of simplicity I prefer MF + term option . But that does not mean ULIP is always bad for everyone .
All said and Done, MF give you more flexibility. Ulip are are more enforced kind of product.
I would not mix insurance and investment. For me ULIP are strict NO NO….
keep things simple invest in good Equity mutual funds like Top 200, IDFC premier equity, etc.
Make sure you buy a term plan. Dont go for the cheapest one. Do focus on settlement rate.
Addition — this piece of advice always holds true. Do not mix investment with insurance…both are for different purposes. Agencies always get more commissions from ULIP, so I’m not surprised at such attempts to prove that ULIPs are better than mutual funds
I posted a comment over there just now which is waiting for moderation, so have to type it again instead of copy paste 🙁
Scenario A: ULIP plan suggested in the article — final corpus — 30 lacs. Let’s add 30,000 per year tax benefits to this. So final amount in hand = 30 lacs + 30,000*15 = 34.5 lacs
Scenario B: MF invested in a SIP of 8,333 p.m in a fund that’s doing reasonable. Even considering a modest 12.5% CAGR over 15 years, the final corpus is 41.39 lacs. Even if you remove the 2500 p.a insurance cover, the final corpus is still 41 lacs beating Scenario A by 6 lacs (or 17%).
This is considering Scenario B is modest return. But if the returns are high, let’s say 20% the return is a mind boggling 79 lacs.
I think there is some mistake in the calculations on that site
Article is very well written with good comparison and well supported by charts.
No comments on which is better, as article itself says “Each one believe one is superior to other solution.”
Three point to mention from that article from Conclusions section:
1. 10th year is the break even year when ULIP plan takes over the mutual fund. So, an investor needs to stay in ULIP Plan for very long time to beat mutual fund+term solution.
2. I believe, still, a well educated investor may do better with mutual fund+term solution. The flexibility is unbeatable. But it requires lot of discipline in equity market.
3. A novice or investor with less financial knowledge may do well with a good type 1 ULIP plan that has low overall cost. Life stage plan or trigger portfolio is good enough.
So you have to decide on what is your time horizon and how good are you at financial investment. If you are good learner then of-course you will not be novice for 10+ years.
But if you are lazy but still have commonsense to invest for a very very long term then UPIL can be a choice.
I WILL PREFER MUTUAL FUND + TERM PLAN. ALWAYS !!! (flexibility is unbeatable).