Net yield of Future Generali Select Insurance Plan is comparatively lower due to a high cost structure
LAUNCHED in September 2010, Future Generali Select Insurance Plan is a plain vanilla type I scheme that has a low-premium band and also offers different modes of payment. The scheme has five investment options (funds) under it.
COST STRUCTURE:
Future Generali Select Insurance Plan is quite expensive than its peers in the category. The charges include a 7% of the premium in the first year and a 5.5% of the premium every year. The mortality charges are also 1.4 times higher than LIC rates. Fund management charge is reasonable.
Considering these charges, if the fund were to generate returns at 6% and 10 % as mandate by the Insurance Regulatory and Development Authority (Irda), the net yield in the hands of investors after factoring the above costs would be 2.5% and 6.6% (approx.). This is fairly lower than the 3.5% and 7.4% annualised net return offered by its peer products.
BENEFIT:
The scheme can be purchased at a price as low as Rs 18,000, which further can be paid off in installment of either monthly, quarterly or annually. It also offers three riders — accidental total and permanent disability rider, critical illness and life guardian rider —that come along on payment of an additional charge.
PERFORMANCE:
Select insurance plan is only a few-months-old scheme. However, some of the investment options available under the scheme like future secure, income and balanced fund have been in place from more than two years now.
The two equity funds were launched recently. They are not performing well. Both apex and opportunity fund have underperformed the market indices, the Nifty and the Sensex. For instance, the apex fund has generated a 7.4% return as against an 18% return generated by the Nifty.
Balanced and debt funds are outperforming their respective. Balanced fund that currently has 65% equity exposure has generated 11% in the past one.
PORTFOLIO:
The plan's equity portfolio is highly bullish on capital goods and energy sectors, which together constitute more than half of the total portfolio. The fund manager has also cashed in on the recent fall banking stocks and increased the fund's exposure from 3% to 17%. The fund is also bullish on the healthcare sector. The portfolio of Future Generali is well diversified to incorporate an average of about 35 stocks across sectors. The portfolio shows clear bias towards large-cap stocks with almost 85% of its equity parked in them. A few stocks like L&T, ONGC, BHEL and Siemens comprise more than 7% of the fund.
The fund manager invests in income mutual fund to generate returns rather than sitting on cash. Churning also does not appear new for Future Generali funds, however, according to fund manger churning is only done in undervalued sectors.
DEATH BENEFIT:
Upon maturity, the policyholder receives the amount accumulated in the fund. Since it is a type I fund, in the case of death of the policyholder, higher of the fund value or sum assured will be received. For instance, say a 35-year-old healthy male invest Rs 24,000 a year in apex fund of select insurance plan for a period of 15 years. Assuming sum assured to be 20 times the annual premium, the total sum assured receivable, in the case of any eventuality, would be Rs 6 lakh. By the end of 15 years, assuming the rate of return of 6% and 10%, the fund value shall be Rs 4,41,664 and Rs 6,24,772, respectively, receivable at the maturity. However, in the case of death of the policyholder, say in the sixth policy year, the nominee shall receive higher of the sum assured Rs 6 lakh or the accumulated fund value then. Also, in case the recipient does not want to take the fund value in lumpsum, there is an option of structured benefit on maturity, where in one gets payments on a yearly, half yearly, quarterly or monthly basis over a period of one to five years.
OUR VIEW:
Select insurance plan has a high cost structure. The fund basket has also not been able to put up a good show, making the product less lucrative for investors. However, those already invested in it should opt for balanced fund for maximising their returns in the long term.
