I had to do this column. Not because ulips are God’s gift to mankind, but unit linked insurance plan that I bought (circa 2004, much before the media decided that ulips are bad). I bought unit linked insurance (and continue to own them) from Hdfc Standard Life Insurance company.
Here are the details for the ones who are mathematically inclined. My insurance premium was Rs. 8000 per month (approximately Rs. 1L a year) and the sum assured was Rs. 20 lakhs (even if it was Rs. 5 lakhs it would have been tax free).
In the first month I paid Rs. 8000 and immediately topped it up with Rs. 3 lakhs. I did this for 2004, 05, 06, skipped 07, topped up again in 08, 09 and 2010. The administrative cost is Rs. 15 per month, the asset management charges are 0.8% (there is no cheaper amc product in the country today – other than ETF).
The risk charges have disappeared (the value of the fund is more than the sum assured). It is a decently well managed fund and thanks to the charges (including mortality charges) this fund of mine has done as well as some of the top mutual fund schemes.
I have no regrets, yes the life cover is over..but I have a 24 year contract which started in 2004 at amc charges of 0.8%. Yes it had a high entry load – I think about 40%, but I overcame that by topping up every year from the first year. For those of you who are good in excel try doing this:
Premium Rs. 100,000. Sum assured Rs. 20 lakhs. Top up (99% is invested – and has a cap of 20% of sum assured minus the regular premium) administration charges of Rs.15 per month, asset mgt. charges 0.8% – and a CAGR of 15% over 25 years. Assume top ups only till you reach the sum assured in the accumulated value.
The unit linked endowment plan of Hdfc Standard life bought in 2004, will beat the Hdfc Top 200 – not because it has superior fund managers, but the charging structure allows it to charge less, much less.
The only protection against bad financial products is SELF learning. Nobody is here to teach you for free. You want a free lunch? Go to a langar or a temple. No banker, adviser, blogger, author is here to customize ‘gyan’. What you get free is some general pointers like:
‘Ulips are bad’ : some joker like subramoney then gives you articles that prove it wrong.
‘Equity is good in the long run’: Look at Japan, and it will be proved wrong.
‘A company that good service is good for the shareholder’: Look at Jet Airways.
‘A company which damages society is bad for the shareholder’: Look at Mcdonalds, Coke, Pepsi, ITC, Citibank..
‘Obama will save the economy’: see under jokes column. Annual PR budget of the financial service industry in the US is $ 5 billion – spent equally between the R and the Democrats. So laugh when Obama says ‘change’. In India only bhikari’s ask for so much change. Others know to really matter you need notes, not loose change.
Blogs like mine are run for fun, for poking you, for poking at the whole world, for selling my book (please buy it from flipcart – there is a link here), – if you learn something here, I am thrilled. This is meant to entertain, poke, …and accidentally educate.
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