A shockingly large number of people, even those who are mature, over 30 and doing well in their careers- invest their money in various financial instruments (Mutual funds, ULIPs, shares etc.) without doing a comprehensive background check while being under the false impression that they have vetted the document carefully. After all in today’s fast-paced world, it’s hard to keep sight of everything and so easy to just skim through the fine print and in the process, overlook or fail to read into seemingly innocuous information that can actually make all the difference between a solid, sound investment plan and one that is weak and essentially carries no weight.
Moreover, quite often a particular instrument might work well for one individual but be a disaster for someone else. This is true even in the case of low risk instruments such as ULIPs. While ULIPs may be relatively a low risk investment scheme (isn’t that just awesome!), their benefits vary depending on the financial institution, the particular plan, etc. For example – A ULIP ‘A’ sold by company X has a premium allocation charge (charge levied by the company for allowing you to allocate assets) of Rs.100. Similarly a ULIP ‘B’ sold by company Y has a premium allocation charge of Rs.150. Now ULIP ‘B’ does not charge you anything if you decide to discontinue with the product whereas ULIP ‘A’ has a certain exit charge of Rs.60. If we were to consider only these two aspects, then for someone looking to stay invested for a longer time period, ULIP ‘A’ would be the better option. Whereas for someone who isn’t very sure of what the future might hold, ULIP B might be the only way forward.
“But there are so many clauses, aspects, and conditions of any ULIP. How is a layperson supposed to have an exhaustive understanding despite going through the offer documents carefully, as to whether the ULIP would be awesome or awful as a potential investment for me and my family?” Relax. We’ve got this-
Benefits you should before buying ULIP products
Conducting a through due diligence on the product you’re about to purchase is definitely imperative. This includes the following steps:
1. Reading the offer document carefully and understanding the performance graph and costs involved.
2. Getting an unbiased expert opinion from a financial consultant whose judgment and opinion you respect.
3. Checking for reviews online regarding the customer care service of the brand and the particular offering you’re interested in.
These steps must not be skipped- Especially since you’re a married man, for whom an extremely high-risk appetite isn’t feasible. Not only may your hard earned money not reap the deserved rewards but also worse, it could depreciate.
1. A Plethora of Options when it comes to Asset Allocation
Having multiple investment avenues to choose from is always better than one or two. Any ULIP with multiple fund options that too with the ability to vary allocations in equities or bonds always has an edge over others that have limited asset allocation options. Multiple fund option based ULIPs also decrease your risk in the sense that you can adjust the investment component based on your risk appetite at a later stage.
2. The Flexibility to Switch between Funds
If your ULIP does not allow you to change funds midway, then you should seriously ponder over whether you should go through with it. You have a wife and kids and are at that age and phase in life where circumstances change quickly. While your situation is definitely more stable since your twenties, at the same time, it’s less carefree as you also have to consider the dreams and aspirations of your loved ones and not just yours. ULIPs that allow you to stop investing in a particular fund and invest in a different one that is more suited to your ever-changing requirements are always a wiser option to go with.
3. Convenience to Redirect your Premium
Your ULIP should give you the ability to redirect your premium. This is especially important for a married man, as you risk profile will tend to decrease with age. For example – If you had started with a large exposure in equity based funds at 32, you might want to shift to debt related funds as you enter your 50s, as debt funds carry less risk than equity based funds. You also get the ability to adjust the insurance component and the investment component of the scheme.
4. Low Overall Costs
ULIPs come with a lot of costs such as mortality costs, premium allocation charges, fund management etc. You want a ULIP that has very low expenses, as this will be reflected on your returns over a period of time. It is better to purchase ULIPs that invest the entire premium, meaning they do not charge any premium allocation charge. You can compare the charges levied by various ULIPs on the internet or their product brochures. Some ULIPs have a zero charge structure where you only have to pay mortality charges and fund management charges.
5. Additional Death Benefits
ULIPs generally offer a death benefit which is higher than the fund value and the assured sum. Some ULIPs come with a third option – they also factor in the percentage of premium paid. For example – 125% of the premium. In simple terms, this means that you get the highest of the three amounts – assured sum, fund value and percentage of the premium. Greater flexibility and more options are always a wiser way of maximizing your returns.
So, do look out for these 5 benefits in a ULIP you are seriously considering an investment in as they form the very crux of a sound investment plan.