ULIPs are insurance cum saving instruements which are being offered to customers by most of private and government financial institutions. Till about 9 months ago these were being offered as powerfuls saving instruements, which combined benefits of insurance and attractive returns.
Although the disclosure statements had a warning " Past performance is not the guarantee for future returns", but invariably agents were marketing these instruements on the basis of past performance only . Buoyed as they were, by strong bull run of stock market.
In previous years many of mutual fund schemes had recorded coumpunded return of upto 50%. Therefore, ULIPS were recording return of upto 30% per annum . Insurance cover was added bonus. This was till Dec, 2007. Since then stock market has slipped and shortcomings of ULIPs are becoming pronounced.
ULIPs of all funds offer huge commissions to their The charges for managing the scheme also are substantial. The amount invested in the first year is nett of insurance premium, commission of agent and management charges.
The amount deducted for these charges may be upto 40% of premium paid in first year. It implies if you pay Rs 1, 00, 000/= as premium, only Rs 60, 000/= will be invested. Some of the funds are investing 80% in first year.
Now, if a fund is investing only 60% of premium in first year, it will require a return of approximately 67% before it breaks even i.e. it reaches Rs 1, 00, 000/= In a stock market which was galloping till Dec 2007, this was possible, but in bear market as it is now, any negative return might bring down your investment to 40-50% of original investment .
This is happening to many investers who invested their money in Dec-07 to Jan -08.Hence timing of investment and complete knowledge about investment policy of concernesd fund is essential. Still better way is to take pure insurance policy for insurance coverage and park investible amount in other investment avenue as per risk profile of person.
SANDEEP