I have seen lot of Blogs with severe negative propaganda on ULIPs.. I have a contrarian view on this.. Let me put forth few facts on some ULIPs I have recommended to my clients and here is explanation on how do they work and why should you buy ULIPs..
I would like to introduce you to an interesting investment plan which is a must as part of your prudent asset allocation/investment strategy for saving/earning money from capital markets. As we are aging, we need to keep more money into secured investments with increased Risk cover with high growth potential. Here is an Insight into an INNOVATIVE investment PLAN "BSLI FORESIGHT"
How does Highest NAV Guaranteed ULIPs work?
· These plans completely works on DYNAMIC HEDGING and CPPI Modules
· The asset allocation between debt and equity will be dynamically managed based on a quantitative model. The variables considered by the model for prescribing asset allocation are the guaranteed amount, the current portfolio value, the difference between the current portfolio value and the guaranteed value, prevailing bond yields and equity market returns. In the bullish market, the Fund will be managed more aggressively with higher exposure to equities. However, if the market is bearish, the Fund will follow a defensive strategy and the assets in equity may be re-allocated into money market and fixed income instruments. Maximum allocation to equities can go up to 100%. Conversely, it can go as low as 0%.
· The methodology is backed by a Guarantee provided by BSLI. In the event that the Fund Value at the time of maturity falls below the Guaranteed Minimum Maturity Benefit (GMMB), BSLI will cover the shortfall.
· Working module shown in some articles on various Blogs does well in Fixed Maturity Plan and Fixed Income plan which is a well proven technique to safe guard the guaranty of Highest NAV.
· But in case of BSLI Platinum Highest NAV guaranteed plans, even after completion of 3 years equity exposure is as high as 90% which is contrary to the theory.
· According to CPPI model as explained below once NAV touches Rs 15 substantial portion has to be invested in fixed income plan to provide the guaranty in 7years and this being every year affair hence in a period of three years at least 50% of the portfolio has to be in debt.
· This also says that since shifting of funds towards equity to debt is only to protect initial highest NAV the reverse is not possible. But It’s Not true.. If you see BSLI platinum fund even recording highest NAV 18.22 fund is into equity with 90% (approx). In early 2009 our platinum fund -1 was moved to debt approx 50% which is consider a smart move by the fund manager and sifted back to equity with approx 90% exposure to get the higher return hence it is more dynamically managed than the set rules as explained in the article.
· Regarding the apprehension of people on how can anyone give guaranty on the Highest NAV? Only way is to check the track record with facts & figures of such existing ULIP schemes.
· Based on the above explanation, If NAV moves as per the market (As seen in several BSLI- Highest NAV guaranteed Plans) then it’s as good as the optimal return. In last three 3-4 years all BSLI’s guaranteed NAV schemes/funds have performed in Tandem with Sensex move and have given similar return having recorded with the highest NAV guaranty which is not possible to achieve by investing in Index Mutual fund.
· Fabien Jeudy, chief actuarial officer, Birla Sun Life Insurance said, "Equity markets have a huge potential towards meeting customer's long-term wealth creation needs. However, many customers tend to stay away from this attractive opportunity due to the lack of knowledge on timing the market and the resultant fear of losing their money. This behaviour brings forth the need for a product offering that can eliminate this fear and give customers the confidence of not just optimizing investments when the markets are low but also locking the gains, when the markets are at a high. Keeping this unfelt customer need in mind, BSLI has designed Foresight Plan, an innovative investment avenue that addresses this requirement. We are positive that this product will induce many more customers to take their first step towards participating in the equity markets, help them protect their investment downside and lock their gains."
· BSLI Foresight Plan provides upside of market related returns while shielding investments from downside risks. The plan offers full freedom to switch from one fund to another-from amongst 10 investment funds under self-managed option. It also offers options-such as increase protection by choosing higher sum assured multiple, option to pay all five years premium in advance, tax benefits under Sections 80C and 10(10D) of the Income Tax Act,1961 and opportunity to invest in New Generation Foresight Fund.
· There is a Minimum Guarantee Maturity Benefit that is provided to the policyholders. Thus if the market is favourable, then the Fund Value at the time of maturity would be higher than the Minim Guaranteed amount and the policyholder can get that Fund Value. But if the market is not favourable, and the Fund Value falls below the Minimum Guaranteed Maturity benefit, then also the policyholder has nothing to lose as he would get the minimum Guaranteed Fund Value at maturity. This policy aims at getting the best of the returns and locking the benefits for the customer. Thus it is a win-win situation for customer at all times.
· At the same time, at any point of time, If we feel that fund is not able to beat the Index returns, we also have the freedom n flexibility to switch out any time during the tenure from guaranteed option to self managed & aggressive equity option of Diversified MF, so as to be free from being locked in with the bad fund manager just in case..!
High Charges in term of Loading Fee, Insurance Cost and Fund Management Charges
· Post September-2010, ULIPs have become very competitive. ULIP Plans loading is limited to as low as 5% which is used to pay the fee to the servicing advisor. With elimination of entry loads, No professional Wealth management advisor will help you with good investment advisory if the fee is less than 5%. So what’s the difference?
· Regarding payment of Insurance cost is as good as buying a term plan which is useful and in fact mandatory for any individual to provide financial security to the family. So what’s wrong if it’s been made part of ULIP?
· Coming to the fund Management fee BSLI fund management fee is always lesser than equity funds in mutual funds. BSLI foresight FMC is 1.75% wherein generally dynamic equity funds come with 2.25% of FMC which contributes more in long run.
· Some ULIPs (Be sure to select the right one!) has all the advantages of MFs and equity markets. And in addition, we are guaranteed for the Hi NAV and also protected from steep corrections etc., and have 10 time of insurance cover with long term commitment.
· In any case, we will also be monitoring the investment portfolio and if they underperform the benchmark indices returns, will keep them on their toes Main reason I went for this is that we tend to gain more if the market is more volatile. i.e. Higher the volatility, higher returns. That’s the Beauty of this product where in we are gaining more if the market falls steeply!
· Thus I feel This kind of ULIPs are much better than investing in stock markets or MFs directly as we have lot of additional advantages in this product.
If you have any plans/funds for investment, this will be the excellent choice.Pl Check and revert if interested in this. If u need any further clarifications, Let me know.
Hari Prasad.
Bangalore.
meva@live.in
