Khota Paisa

ULIPs – Towards A Bright Future

Posted in ULIP by khotapaisa on September 20, 2009

Few days back, I was talking to a financial advisor. During the course of discussion, he told me that from year 2012 onwards there won’t be any charges on ULIPs. Basically, ULIPs will be on the same level as the mutual funds today. I am not sure how correct is this but I would be delighted to see it happen. This, in my opinion, will be the single best development in the investment world till date. This may sound like an over-statement but let me explain you the reason. Of all the investors who invest in equities, a large majority are the salaried class. In fact people with lots of money hardly invest in equities. They just put all their money in FDs. The reason why a common salaried person invests in equity is that he/she has to fulfill his/her financial goals (child education, marriage etc) which can’t be achived just by the current income source(s). Owing to the eagerness to earn more thru euqities, these investors end up chasing return. This results in a regular crunching of portfolio which eats up all the returns. So the single biggest enemy of the common investor is the churing in portfolio. And this is where the ULIP comes to the rescue. Unlike mutual funds, ULIPs don’t provide the option to churn. It also brings a certain level of discipline in the investor. With all the charges gone, ULIPs may well become the preferred choice of equity investment. At least I would, then like to see people prefer ULIPs over MFs.

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8 Responses

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  1. Amish Desai said, on December 12, 2009 at 11:35 am

    What do you think about SBI life-Smart Ulip plane?A Unit Linked plane.

    • khotapaisa said, on December 12, 2009 at 4:48 pm

      Hi Amish,
      I will have to go thru the details of the plan, but in general SBI ULIPs tend to have comparatively lower cost. An important (more than anything) thing to keep in mind before buying ULIP is the need of the ULIP. Don’t buy it to save tax or as a short term investment. So, if you plan to keep paying premium for full term(atleast 10 years), ULIP is a good option.

      • Amish Desai said, on December 17, 2009 at 11:05 am

        Thanks for prompt reply.Awating for your reply for SBI life -smart ulip.As from 1st of jan 2010 ulip terms for charges will going to change.So we can think over that & also its require to pay for long term..may be 10yrs min.

        Amish Desai

      • khotapaisa said, on December 17, 2009 at 5:09 pm

        As I said that SBI ULIPs generally have lower cost. So you can go for it. And you are right that from next year onwards, the ULIP charges will be subjected to cutoff. But I guess it will not effect every ULIP.
        After posting the above comment, I just checked the brochure of smart ULIP. It is a complicated product. Though on a cursory look there doesn’t seem to any pitfall in it, I would still prefer staying away from a product this complex. Go for a ULIP which is simpler, so no guaranteed NAV etc etc.

  2. Srikanth Matrubai said, on April 16, 2010 at 6:10 pm

    Well, khotapaisa sir, you have forgotten to mention that ULIPs have a option of 4 free switches in a year. What would prevent an investor from switching and in turn, churning his investments even in a ULIP.

    • khotapaisa said, on April 17, 2010 at 3:06 pm

      Hi Srikanth,
      Unlike MFs, ULIP switches don’t cost to the investor and being an indirect way, don’t draw the same interest (and hence activism) from investor as far as crunching is concerned.

  3. Rakesh Jani said, on April 19, 2010 at 12:51 pm

    Recently in December 2009, I invested some of Rs. 99,000 in SBI ULIP scheme. I understand, I have to continue investing same amount for minimum three years. I am bit concerned with recent news on the ULIP and ongoing policy dialogues between IRDA and SEBI.

    I would like to seek your guidance on the continue investing in the ULIP now onwards.

    Look forward to guidance.

    Best, Rakesh

    • khotapaisa said, on April 19, 2010 at 8:36 pm

      Hi Rakesh,
      Don’t worry about the IRDA-SEBI spat. Your investment in ULIP is safe. Keep investing for the full payment term, not just three years. ULIP start working for you only if you invest over long term (10 years or more).


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