Skip to main content

Parameters for buying ULIPs

Best SIP Funds to Invest Online 


Planning to buy a Ulip? First assess the policy on the five Ps—People, Process, Price, Parent and Performance. These key elements of marketing are very relevant parameters for judging a policy. However, a little introspection and customer insight reveals that there are actually only two Ps—Performance and Parent. I'm not suggesting that we discount the other Ps. I believe when the foundation is strong (that is, Parent), it ensures that the other building blocks—People, Processes and Price—fall in place, which in turn reflects on the Ulip's Performance.

For Ulip investors, one key aspect to look at is the pedigree of the brand they are investing in. The first P—Parent, and its financial health. In insurance, this is best measured by a metric called solvency ratio. It indicates whether the company has enough buffer to meet its liabilities in case of an extreme situation. The insurance regulator stipulates that the solvency ratio should be at least 150%, but several insurance companies have a significantly higher ratio—thereby indicating their superior financial health. Also, a good and quick claims settlement process, which can be measured to some extent by the claim settlement ratio, is a must. A simple Google search will throw up these numbers on a year-on-year basis.


When companies dedicate themselves to providing long-term investment solutions for customers, they invest significantly in their people, who are oriented to think long-term. For Ulips, this would especially stand good for the investment team. An experienced investment team would have witnessed several market cycles, and therefore, would be able to minimise the downside risk during a down-cycle, while delivering the desired returns in a market up-cycle. The tenure and stability of the team are crucial in helping customers achieve their life goals.

Process is an important parameter in a Ulip. A customer may not be aware of the investment philosophy and or strategy, portfolio construction and stock selection process being followed by the Ulip's fund manager. Nevertheless, these will reflect in the company's orientation and investment history. When a company is focused on short-term performance, it tends to take on additional risks in the portfolio, especially in a momentum market. A long-term investment orientation ensures the team manages portfolios and investments keeping in mind the customer's life goals, and is not directed by market movements.

Price is another important pillar. Ulips have various charges, such as premium allocation, mortality costs, fund management and policy administration. The common perception is that Ulips are cost-heavy. However, regulations and market dynamics have reduced the expenses of Ulips, making them a value packed investment option.

Next is the performance pillar. Apart from providing protection, Ulips are also designed as investments to meet long-term life goals. Hence, checking the long term performance will provide the true attributes of a Ulip. Track records of the different funds of insurance companies are listed on several websites or rating agencies. Check the fund's performance for a period of 5-10 years and over a market cycle (both up market and down market).

Next, customers can look at the downside risk protection metrics like maximum drawdown, and downside capture ratio to judge whether the fund has been able to protect downside risk. Remember, to make up for a 60% loss in investment one needs to make a 150% return. The other metric to evaluate is the rolling returns of the funds offered. This helps cut out the point-to-point bias in performance and is a better measure of a fund's consistency of performance. Again, look at long-term periods. You could also look at the Sharpe ratio and Treynor ratio for long term periods, which measure the risk-adjusted performance of the fund.

These five aspects will help the buyer identify the best Ulip. However, as the parent and the performance pillars brings out the clearest picture, customers must focus on them when investing in Ulips for their long-term goals.



SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Popular posts from this blog

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now