Three questions, same answer!

1. Subra I have been paying an annual premium of Rs. 10,000 for the past 7 years, but the amount accumulated in my ULIP policy is only Rs. 59,000. What should I do with the policy now? My agent tells me the upfront charges which were high have already been paid by you…so now the returns should improve. Is this true? The agent is my father’s friend and he is an agent with………………..

2. Subra I have been paying an annual premium of Rs. 100,000 and had kept the money in equity schemes till 2008. Then I shifted it to debt on the advice of my agent and even though I have paid premium for the past 6 years. My total premium paid is Rs. 600,000 and the amount accumulated is Rs. 649,000. Compared to my mutual funds (SIP) this is PATHETIC. When I had asked my agent he suggested an annual premium instead of a monthly premium. Now he is saying continue to pay the premium. What should I do?

3. Subra I have been paying a premium of Rs. 40,000 per annum for a ULIP for the past 3 years. I am disappointed with the FUND PERFORMANCE – apart from the high charges. What should I do?

My take:

Surrender the policies. All 3 of you.

The first case (let us call him A) is paying such a low premium that HE will NEVER make money on that plan! Why? Simply because there is an ADMINISTRATIVE charge of Rs. 60 per month – this translates to 7.2% of the premium! Then there is a 1% entry load, asset management charges of 1.25%, risk charges, etc. The way the charges are structured, people can make money in product either by being a manufacturer or a distributor. The holder HAS NO CHANCES of ever making money on this product. It is a CONSTRUCTION issue.

The second case (let us call him B) is unlucky because even though he is paying a premium which is high, he has a poor adviser. The switch was unnecessary, and sadly ill timed. Also he is with a company which replaced a good fund manager with a very poor one. This is hurting. I am suggesting B also to surrender the policy because of this fund manager. Now if you leave your money in one scheme for 30 years, it better be a good fund management team, not just an ordinary one. This brand, one hoped, could attract good talent, but alas!

The third question is by C. Please understand that if you are unhappy with a fund manager’s performance, it could be because of many reasons. However the last 3 year market / index has not been to great either. So compared to the index if his performance is poor, and charges are high, you might as well surrender it, right?



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  1. ‘CONSTRUCTION ISSUE’ ? Ooops!! i thought it happens only in construction/real estate industry. To me it sounded like a theft/ day light robbery issue.


  2. Chandrakant Dhutadmal

    Subra, as you always say, people will do what they want to do and you will always keep on writing what you want to write.

    Believe me there are people who inspite of telling them about these fundamental problems with such products, they will still go for it. I know one colleague of mine, who inspite of telling him explicitly drew the cheque in ULIP and 2-3 years later asking the same question to me which you have answered for.

    Your intention is to inform people.

  3. Even while every financial advisor shunning the ULIP and most importantly knowing this fact, I had to take ULIP last year as part of ‘give & take’ philosophy that we enter with friends and relatives. Infact I walked into the bank for enquiring about tax saving FD and came out with ULIP. The Total charges for the first year was 15% and for remaining years about 5%. I have not reshuffled and opted for Blue chip equity fund. Here is the silver lining that I have seen so far.

    1. I compare it always with HDFC ToP-200 and this ULIP NAV is more or less same with no gain or loss in the last 1 year.
    2. I have taken the advantage of tax exemption ( I am in 30.9% bracket)
    3. I have got the insurance of 10 lacs (premium 1 lac/yr)
    4. I have got all important locker facility where the bank is very near to my home.
    5. Many other service requests were done promptly in the bank.
    6. Maturity is tax free

    Even though I am paying 1 lac as premium per year, I consider my net flow is only 69K given the tax exemption. The real loss happens if my fund suffers 31 % crash each year for the next 10 years. Guess not a bad deal overall.

  4. comparing to hdfc top 200 should be done on 100,000 NOT THE SUM INVESTED

    compare it to the hdfc tax saver – you would have saved 30% of tax anyway,

    then add the term insurance premium.

    Now do it EVERY YEAR for 5 years. Keep the Tax saver fund also the same, and we will meet here in 2019.

  5. Agreed that ULIP of mine is not technically sound investment call and doubt its returns would be at par even with FD. Even the break even ignoring the inflation would bring cheers given the other indirect benefits that I have derived.

    With regard to the term insurance I have a big concern even while with everyone advocating these days. For the ULIP premium payment this year, I had to write 3 complaints to get a reply from a serious company like HDFC life. If you have simple query for premium payment and the answer is hard to come by, I really doubt whether the term insurance claims would ever be passed to the nominee by any insurance company. We need to generate serious statistics to see the claim settlement ratio in this segment. I am sure the every insurance company would throw their might to deny the claim if the sum assured is of high value. Until the credibility is established, I would be hesitant
    to advocate to any one including buying for self.

  6. ‘fixed’ charges is something every retail investor should be aware of as it becomes a significant part of their low budget investment – but for some reason they just don’t care.
    i have seen senior citizens willingly schedule a visit to some banks & lic offices at their earlier place of residence just to submit existence certificate or sign fd renewal forms – the cost of the visit (of course in 3AC) is a huge %age of the annual incomes, but they mix finances & emotions to their detriment…

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