Aviva Freedom Life Advantage offers variety of schemes to suit investors with different risk appetites. One can also opt for the term rider for better insurance
LAUNCHED in September 2010, Aviva Freedom Life Advantage is a type 1 unit-linked insurance plan (Ulip). The plan embraces wide range of features, including the term rider. There are eight investment options (funds) and some of them are unique such as infrastructure fund and PSU funds.
COST STRUCTURE
Freedom Life Advantage has a reasonable cost structure. The premium allocation charge is high in the initial year but it falls between 2% and zero from the sixth year, depending on the annual premium. However, any additional premium paid towards investment purposes only (top-ups) are charged at 2% as allocation charge. Policy administration charges remain constant at 1.2% a year but mortality charge is relatively high. Considering these charges, if the fund were to generate returns at 6% and 10 %, the net yield (including mortality and service tax) for investors after the above costs would be around 3.9% and 7.9%, respectively.
BENEFITS
The plan offers additional units that make it cost efficient. Loyalty addition of 3% is given on the tenth policy year. Thereafter, depending on the annual premium 2% or 1.75% additions are offered every third year.
The plan also offers a term-rider that allows policyholder to get adequate death cover, which is quite unlikely in other similar Ulips. However, the term-rider comes at an additional cost and at most doubles your sum assured.
A few other benefits include:
1) The plan offers systematic transfer plan and automatic asset allocation (AAA) that systematically transfer fund from one investment option to another based on time and age, respectively.
2) Dread disease rider that covers 18 critical illnesses under it.
3) Joint life option to secure spouse under the same policy.
PERFORMANCE
Freedom Life Advantage has eight investment options that were launched in January 2010. Most of the funds have outperformed the benchmark and the major market indices including the Nifty and the Sensex.
Life enhancer fund stands out as a top performer, generating 17.5% returns. However, this fund is positioned for high-risk appetite investors, due to its high equity exposure. Other equity-oriented funds include infrastructure fund, index fund and PSU fund. Though their performances have been not as good as the enhancer fund, they are equally lucrative. Its PSU fund invests in public sector units. This fund due to its stock selection becomes a moderate risky fund. In the balanced category, the growth fund has delivered 13.3% returns as against 10% benchmark returns. It has over 70% equity exposure. Among the three debt-oriented funds, the balanced fund has generated 10% returns against 8% returns of the benchmark. But this fund has 30% equity exposure. A highly risk averse investor may opt for protector fund.
PORTFOLIO REVIEW
The fund basket of Freedom Life Advantage is quite interesting with four funds of the total eight available fund options having more than 90% equity exposure. However, the theme of all the funds is fairly different. On an average, the fund's portfolio comprises minimum 70% large-cap stocks and the rest is invested in mid and small-cap stocks.
As far as the sector composition is concerned, the portfolio of Aviva is concentrated on just about four sectors — oil and gas, banking and finance, capital goods and infrastructure. This makes it a high beta portfolio. The fund has exposure in FMCG and healthcare sectors also. The fund manager intends to increase its exposure in these sectors when valuations are desirable. The fund manager is not bullish on metals and cement.
DEATH/ MATURITY BENEFIT
Upon maturity, the policyholder receives the amount accumulated in the fund, whereas in case of death, higher of the fund value or sum assured will be received. Also, under joint life option, death benefit is payable on the first death and the policy terminates. For instance, say a 35-year-old healthy male invests 25,000 a year in enhancer fund of Aviva for a period of 15 years. Assuming sum assured equivalent to 15.75 times the annual premium, the total sum assured in case of any eventuality would be 3.9 lakh. Now by the end of 15 years, assuming the rate of return of 6% and 10%, the fund value shall be 5,19,948 and 7,30,909, respectively, receivable at the maturity.
OUR VIEW
Freedom Life Advantage has a competitive cost structure; additional units make the net cost of the product further low. The fund basket is designed to suit investors with varying risk appetite. One can also opt for the term-rider for better insurance.
