ULIP and Mutual Fund Comparison

I recieved couple of emails asking for comparison between ULIP and Mutual Fund.
Here it is..

I will start the comparing in a different way.. my point is "When to choose investing in ULIP??".

In short, ULIP = Insurance + Mutual Fund

1. If you don't need insurance, ULIP is not the best bet
2. If you need insurance and want to invest in mutual fund kind of instruments, ULIP is the BEST bet
3. ULIPs are hybrid products. that means, they have insurance and investment component
4. ULIPs offer insurance at a very cheaper rate than term insurance, as others say, I don't agree to the point that term insurance + mutual fund is better.. I don't agree. you can compare for yourself.
5. In ULIP, you can switch between Equity fund to Debt fund and vice versa without any entry/exit charges but you can't do that in Mutual funds. in MFs, there will be entry/exit charges if you do that
6. You have to invest for atleast 3 years in ULIP, but MFs are not like that
7. ULIPs are eligible for Section 80C tax rebate. MFs are not (except tax saving MFs)
8. ULIPs have lock-in period of 3 years where as MFs are not (except tax saving MFs)
9. Returns on ULIPs are not taxable, but returns on MFs are taxable if you withdraw within 1 year
10. You can invest surplus amount in ULIP with minimal entry load or charge, where as there is nothing like surplus in MFs.. in MFs everything is considered as plain investment with same charge
11. ULIPs may or may not disclose the holding portfolio but mutual funds have to disclose where they are investing
12. ULIPs generally have low expense ratio than MFs
13. ULIPs have additional charges on insurance where as MFs doesn't have any insurance component
14. ULIPs have additional charges called "Allocation charges".

So, choose wisely, invest wisely. Bottom line is,

"If you want some insurance at cheaper price and also want to investment in mutual funds, ULIPs are the best instruments to invest in"
 

Effect of NAV on Switching between funds!! What is cut off time?

You can switch between different funds in ULIP.
But what is the cut off time for the switch?.

According to irda, cut off time is 4:15 PM. Well here is the example

Scenario : Switching between Debt to Equity Fund

Time : Placing the request at say 2:00 PM. By written request or through cash.

Date: March 03, 2007

NAV of Equity fund dated March 02, 2007 : Rs 30

NAV of Equity fund dated March 03, 2007 : Rs 31

NAV of Equity fund dated March 04, 2007 : Rs 33

o.k shall we do the analysis now.. ?

As you put your request by 2 PM your NAV will be taken as Rs. 31.

As per my observation, NAVs are usually declared at 10:00 PM or so..

IRDA says

10.6.1.1 In respect of premiums/funds switched received up to 4.15
p.m. by the insurer along with a local cheque or a demand draft
payable at par at the place where the premium is received, the
closing NAV of the day on which premium is received shall be
applicable.

10.6.1.2 In respect of premiums/funds switched received after 4.15
p.m. by the insurer along with a local cheque or a demand draft
payable at par at the place where the premium is received, the
closing NAV of the next business day shall be applicable.
10.6.1.3 In respect of premiums received with outstation
cheques/demand drafts at the place where the premium is received,
the closing NAV of the day on which cheques/demand draft is realized
shall be applicable.
 

Kids ulip plan!!.. Is it any good? What's the difference?

Few of my observations on Kids' ULIP Plans

1. Kids plan is no magic. It can't give any better returns than any other plans

2. If you are spend thrift and someone else to manage your money then go for kids plan.. of course for your kid

3. Difference is that the other ULIP plans are flexible on withdrawl. But Kids plan is little rigid on that.

4. Amount you get is based on the age of your kid.. rather I would say milestone of your Kid's life. for example, after 10th std, 12th std and for degree.

5. Sometimes it's good to go for Kids' plan as you may tend to withdraw all your money at once!!!..


Happy investing!
ulipinvestment@gmail.com

When is the right time to invest? Don't wait for the year end.

As per Income Tax Guidelines, Tax Saving Investments can only happen with the earnings in the financial year only!!
That means, if you want to invest in tax saving instruments in April, it will not be considered for tax savings. (This is valid only for salaried employees who get their salary at the end of the month).

So, once you start getting earning in the financial year, you are good to invest.

Don't wait until march.. start saving/investing right from May!!.. Count the crucial 10 months of returns!!..
If not in bulk, consider Systematic Investment Plan!!!.

ulipinvestment@gmail.com

ELSS and PPF returns are Taxed!!!???

Good news for ULIP Investors!!!

Heard of EET??. Means, Exempted Exempted Taxed. E means, Investments are Exempted from tax, E Interest earned Exemted from tax and T means Returns on maturity are Taxed.

So far PPF, ELSS had EEE that means they are totaaly tax free. on investment, interested earned and on maturity.. but not any more..

Draft recommandations for budget 2007-08 says that PPF and ELSS will be EET!!!

So, only instrument that is totally tax free is insurance based investments!!!..

As ULIPs come under Insurance Based Products, they won't come under EET tax net!.

Have a look at this article in economic times : http://economictimes.indiatimes.com/PPF_savings_may_be_taxed_on_maturity/articleshow/1647814.cms

Happy investing in ULIPs!

ulipinvestment@gmail.com

Does NAV reflect the ULIP Performance?? No! to a large extent

ULIPs are meant for long term investors. But you never know when you would need the money. Marriage, Child's education, etc etc.

So, considering 3 years as a investment horizon, it's important to understand the effect of charges in ULIP as you may want to exit after 3 years for better investment opportunities. 
Also, note that you can take your money after 3 years.

Charges in the initial years of ULIPs eat up lot of your money. For example, let's compare two ULIPs with initial charges..



ulipinvestment@gmail.com

ULIP Comparison - Charges and others

As you know there are so many charges which are applied on the investment you make on the ULIP investments. Here is a simple to use spread sheet which will allow you to capture the charges and other facts of ULIP plans offered by different companies.


Have a look at this spread sheet. Whenever you call a ULIP investment advisor from a company chart out these charges and other benefits and compare.



http://spreadsheets.google.com/pub?key=pavymIhDyVVDmcRKksdgMCQ

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