Showing posts with label ULIP. Show all posts
Showing posts with label ULIP. Show all posts

Highest NAV Concepts - Guarantee Highest NAV Hidden Conditions

Let me explain all hidden conditions and concepts of Highest NAV Concepts with implication on your investment.

No multiple fund selection option
Generally, ULIP policies come with multiple fund options ranging from pure equity fund, pure debt fund and balanced fund etc. But, the guarantee highest NAV policy offers only 1 or maximum 2 funds and these funds are also more than 95% debt oriented. The debt fund give guarantee and stable return around 7%-8% like bank deposits.

No pure equity fund option –Biggest hidden condition
No guarantee highest NAV policy offer fund with minimum equity exposure to 100% through they mention maximum equity exposure to 100%.This means they have full freedom to invest money 100% in only debt fund. So, you will not get benefits of equity market which gives pretty good returns in long term. This is an excellent marketing tactics to attract even educated people.

No Guarantee at Partial withdrawal
You will not get guarantee highest NAV for your partial withdrawal during any time in policy.So, you will not able to withdraw money with guarantee highest NAV benefits.

Limited and late partial withdrawal
You can not do partial withdrawal before 4th or 5th policy year and you can do partial withdrawal only once in policy year. This will be additional constraints so, you will not be able to utilise this option effectively

Guarantee only at Maturity
You have to be invested for entire policy years (may be 7 or 10 years) to get guarantee highest NAV benefits.

Long wait to get your return
These policies are designed to keep policy holder invested for at least 7 years.This will be long time for any investment. The mutual fund will give good returns for same time too.

High ULIP charges
Don’t forgot this is a ULIP policy which is the costliest policy ever, All your premiums will be deducted with high charges first then the remaining balance will be invest in fund. So, if NAV is Rs 10 and you pay Rs 1000 as annual premium then you will not get 100 units. Rather, you will get around 70 or 80 units only. So, you will not get returns similar to bank fixed deposits too.

Almost No Insurance Coverage
Just calculate 5 times the annual premium will be your sum assured for insurance coverage.Dont you think it no insurance for you?

IRDA Rule - No disclosure for ULIP fund
Every mutual fund has to disclose their fund allocation in equity market by end of business day as suggested by SEBI. But, for ULIP fund which is not compulsory to disclose fund allocation as guided by IRDA. So, there is no transparency in entire ULIP fund allocation.

This concepts may differ based on different companies and policies.
Think twice before taking such Guarantee highest NAV policies.

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Highest NAV Concepts - Practical example

Every insurance company launches their new guarantee highest NAV ulip policy in the market. People will opt for these ulip policies without checking details of the hidden condition.Let me explain these concepts with real life example.
Let’s think practical: If insurance company has 10 policy holders with Rs 1000 annual premium. Each policy holder has 100 Units (with initial NAV Rs 10 and assuming no ulip charges are deducted).The company has total 1000 Units (100 Units per customer and total 10 customers).If we consider fund performance as shown in following table.


Guarantee Highest NAV Policy Comparison

Year
Guarantee Highest NAV policy
Reality-Returns(Appx.8%) in debt fund

Closing NAV in Each Year
NAV*Units(1000)
Closing NAV in Each Year
NAV*Units(1000)

1
10
10,000
10.80
10800

2
15
15,000
11.60
11600

3
25
25,000
12.40
12400

4
20
20,000
13.20
13200

5
17
17,000
14.00
14000

6
15
15,000
14.80
14800

7
16
16,000
15.60
15600

8
15
15,000
16.60
16600


Total fund corpus after 8th Year=15,000
Total fund corpus after 8th Year=16,600
If all 10 policy holders want to redeem their units at the end of 8th year and the highest NAV is Rs 25 then the insurance company should have Rs 25,000 in their corpus to satisfy the redemption requests of the policy holder. But, as shown in the table, Market is not good condition right now and current NAV is Rs 15 then how will this insurance company with manage to give Rs 25,000 to their policy holders.

Nobody can guarantee returns in pure equity fund and everybody can guarantee returns in pure debt fund. So, these insurance companies are advertising on the basis of ULIP equity funds but they will be investing more than 95% fund value in debt fund for sure.

If any insurance company is giving guarantee highest NAV for pure equity fund then I will take a bank loan and invest all money in this fund. because I know market will definitely give good returns at least once in 7 or 8 years as given in past too.

In Summary, Please understand these hidden conditions and take a wise decision to invest money better to get better return.
Check ICICI Pru pinnacle Fund performance
Check SBI Life smart ulip both fund performance
You may read


Highest NAV Concepts - Guarantee Highest NAV Hidden Conditions
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SBI Life Smart ULIP Concepts - Exposed with fund performance?






Main features(As advertised):
- IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER - Forget about Guarantee.
- Assure Guarantee of highest NAV in during the first seven years on Maturity.
- Manage and give you maximum opportunity for your investment to grow while protecting your investments against market conditions.
- Fixed Sum Assured 5 * AP (Annualized Premium)

Actual SBI Life smart ULIP concepts – Misleading concepts
“Let’s prove your NAV will remain constant with +/- Rs 2 maximum”

SBI Life smart ulip offer two funds Flexi protect fund Series II and Money market fund. Flexi protect fund Series II and Money market fund has no minimum contribution for equity (Stock Market) in fund allocation But, Still both funds can invest in equity. But they will never invest in stock market.

The premium amount after deducting for all the high ULIP charges will be invested in Money market fund first then these units will be diverted into Flexi protect fund Series II based on pre decided date. So, Your NAV will be always near to your initial NAV of Rs 10 because there is no equity exposure which gives excellent return in 7 years or long run.

Please have look at NAV value for past few Months for both the funds
1) Money Market Fund from 1st JAN'09 to 28th FEB'10, the NAV grows from 12.14 to 12.9337 respectively
2) Flexi Protect Fund Series II from 8th JAN'09 to 20th MAR'10, The NAV rise from 10 to 10.8871 respectively.
You will be knowing Equity(Nifty and Sensex) both have given more than 65% return from 1st Jan’09 to 1st Jan’10.Your funds NAV are still constant at around Rs 12 and Rs 10.

Check SBI Life smart ulip both fund performance (NAV performance of the funds are taken from SBILIFE website, You Can check there also)

additionally, You are not getting enough insurance coverage here too. Just calculate 5 times of your annual premium will be your insurance coverage.If you consider annual premium of Rs 40,000 then also you will get Sum assured of Rs 2 lakh only.

Summary: SBI life smart ULIP plan does not give enough insurance coverage and enough return because it has no flavour of Equity. Rather,You will bet higher sum assured using Term Insurance and high return using SIP in any diversified mutual funds over next 7 years.
SBI life smart ulip simply fails on all aspects as other highest guarantee funds fails.

You should read - LIC's Wealth Plus misleading concepts  
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LIC's Wealth Plus misleading concepts


I am going to show actual Concepts/Facts(based on LICINDIA.COM) with my analysis.


LIC's Concept#1 
LIC’s Wealth Plus is a unit linked plan that safeguards your investment from market fluctuations, so that your investments are protected in financially volatile times. This plan offers payment of Fund Value at the end of policy term, based on highest Net Asset Value (NAV) over the first 7 years of the policy, or the NAV as applicable at the end of the policy term, whichever is higher. NAV of the fund will be subject to a minimum of Rs. 10/-. The policy term is 8 years with an extended life cover for 2 years after the completion of policy term. This plan will be available for sale for a limited period.


Answer#1 if fund perform in following manner.


Wealth Plus
As Shown by LIC
Reality

Year
Closing NAV in Each Year
Closing NAV in Each Year

1
10
10

2
15
10.13

3
25
6.17

4
14
6.78

5
12
8.45

6
19
9.35

7
24
10.25

8
23
10.02

Highest NAV in 1st 7
Years
25
10.25
Do not hope LIC to give you return with NAV of Rs.25 but you will get your return with Rs.10.25.So,in reality your applicable highest NAV will be little more than Rs. 10 as they assure minimum of Rs.10 

LIC's Concept #2 
Guaranteed NAV: In this product there is a guarantee of the highest NAV recorded on a daily basis, in the first 7 years of the policy, subject to a minimum of Rs. 10. This means the payment at the end of the policy term will be based on highest Net Asset Value (NAV) recorded over the first 7 years of the policy, or the NAV as applicable on the end of the policy term, whichever is higher. The guarantee will be applicable only for payment made at the end of the policy term irrespective of any partial withdrawals made during the policy term. The period of 7 years starts from the date of commencement of policy.
Answer#2 If you opt for 8 years as policy term then you have to continue remain invested to get guarantee highest NAV for all Units.if you do partial withdraw then you will not get highest NAV on sold units.

LIC's Concept#3 Guarantee highest NAV at No FREE?
Answer#3 There is a big list of ULIP product charges too like 

Mortality Charge
Service tax
Policy Admin Charge
Guarantee Charge (It charges for guarantee return too :) )
Other Charges
FMC -Fund Management Charges

LIC's Concept#4 (based on LICINDIA.COM)
Warning  -IN THIS POLICY, THE INVESTMENT RISK IS BORNE BY THE POLICY HOLDER.
Answer#4 -The policy talks about guarantee highest return and clearly mention that risk has be borne by the customer.They do not guarantee your invested amount too.Hows funny is this!!

LIC's Concept#5 (based on LICINDIA.COM) 
We have different fund category with equity options too.
Answer#5 They have different fund category but they have full right to put 100% Money in debt fund where you can not expect return more than Fixed deposit interest means around 7%-8%. As i mention your fund NAV will not cross more than Rs 10-11 in 1st answer.



So,Please do not ever think about LIC's Money plus plan and similar guarantee return plans 

More details please read – 
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ULIP fundamentals #3 with Fast Facts

Which is the most complex policy?
ULIP

Which is the costliest policy ever?
ULIP

Which is the worst policy for policy holder?
ULIP

Which product does not guarantee your premium amount too?
ULIP

Which product is least transparent for the policy holder?
ULIP

Which product has highest no of terms and conditions?
ULIP

Which product does not guarantee any return?
ULIP

Which is the most selling product by agent/company?
ULIP

Which is the most profitable product for company?
ULIP

Which product gives you more frustrations when you really understand product better?
ULIP

Which product has the highest terms and conditions for surrendering the policy?
ULIP

Which product gives high commission to the agent?
ULIP

Which product misguide policy holder the most?
ULIP

Which is the best policy for life Insurance company?
ULIP

Which product selling force your agent calls you twice in a day, each day?
ULIP

Which is the hot product in the market?
ULIP

I had taken ULIP policy four years back by just looking at the illustration at the end of policy document as shown by insurance agent of Max new York life insurance Company. I have rectified this big mistake in 2010 by surrendering this policy even if I am making of loss of 15%.

My total investment in ULIP is Rs 60,000 and current fund value is Rs 49,500, So far they have deducted more than Rs.15, 000 as ULIP charges. If I would have done investment in Mutual funds, my fund value should be nearly Rs.1 Lakh.

Summary: Basic and final fact is you are not getting enough insurance coverage and enough return on your investment in any ULIP policy for short term or long term.

Just say “NO” to any form of ULIP policy.


More details please read – 
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