Professional Answers on Investments
Insurance, Mutual Funds, Sensex, Nifty, Financial Planning
If you know how mutual funds work, then the same way the ULIPs work. The difference is ULIPs have a component of Insurance premium which will be deducted from your premium and balance will be invested in stocks as per your option in Growth fund/secured fund etc.,
insurance companyes give u a unit at the rate of NAV .company invest u r 50% to 60% in share mkt & on the other money give u interest @ 7.49%. Insurace company never invest u r whole money on one sectore in the stock mkt.
Money invested in ULIP plans is reinvested in Stock market by the company. As the share market moves, money also moves ( Increases/ decreases). And as there is a switching facility aviable in ULIP, One can move his funds to profitable plan and can earn good income on investment. Coz ULIPs are invested at least for 3 years, there is no lose for an investor because after three years sensex will go up. If we see three years back it was not moving between 15000-20000 points.
ULIPs are in someways like mutual funds. You purchase the ulip at a quoted NAV. Your money is invested in equities by the fund manager. Not all of ur money is invested as this needs to be an insurance option. This is the reason ulips give more returns when compared to other insurance options available.
ULIP is like mutual funds , investing in stocks, but the difference is you pay 30% commission in ULIP , where as 2 to 4 % in mutual fund as commission
I somewhat agree that ULIP works as Mutual fund. But amount deducted is not just Insurance Premium(mortality charge) but also Premium allocation charge & Policy admin charge. These charges eat most of your return & one need atleast 2-4 years just to recover the investment & then he can expact some returns. Actually IRDA(who govern ULIP) is not a strick regulator & companies loots the investor in for of many charges & also these agents mis-guide the investor for purchasing ULIP. On the other hand ,SEBI (who govern Mutual Funds) is a very strick regulator & has managed to keep Mutual fund charges under strick control & MF industry will see more reduction of charges in future. Also Mutual fund Agents do not have too much scope of misguiding investor (even if they do, effect of it on investor is not to that extent).
There is one additional option of some free switches (which is not that free in Mutual fund or not available in tax saving fund for first three year) but it is too hard to use that option in advance(there is generally 3 PM cutoff for the next day market). As per research, only 2 % use this option ( don’t know if they get benifit or loss by using this option). Switch option is generally useless as no one can predict the market in normal conditions.
To get ULIP more attractive for investor, IRDA & company has to reduce various charges (mainly premium allocation & policy admin) , so that ULIP works like Mutual fund.
Otherwise MF + Term Insurance is best.
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