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Introduction to
ULIP
Common myths and apprehensions
.
Insurance only provides money in the event of death
Insurance plans do not provide high returns
What if I cannot pay premium for the entire term?
What if I need my money back due to a financial emergency?
A ULIP is a Life Insurance Policy which provides a
combination of Life Insurance Protection
and Investment
*A pension plan can also be in the form of ULIP
Solution: Unit linked insurance plan
ReturnsRisk
cover
Let us talk about our…
Needs
And many more…
Classifying needs
Short term
• 1 to 5 years
Long term
• More than 10 years
Needs
Short term
Long term
• Buying a bike or car• Household assets• Going on vacation• Buying gifts for your loved ones• Upgrading lifestyle
• Planning for kids education & marriage• Protection for dependents/ Parent• Securing future of your family • Wealth creation for long term• Retirement planning• Buying a house
Non negotiable
Cannot be postponed
Cannot be modified
Can never be dropped
No alternate available
Long term goals (> 10 years)
To achieve long term goals one needs…
A solution that provides protection and beats inflation year on year…
10 years
Anything that costs 10 lakhs today would cost 22 lakhs* after 10 years
* Considering rate of Inflation @ 8% per annum
Impact of Inflation
10L 22L
Investment avenues
Gold
Real estate
Debt instruments
Equity
Equity as an asset class has the potential to outperform all other asset classes in the long run
Challenges while investing in real estate
Average ticket size for real estate investments is very high
Real estate investments attract High transaction cost (stamp duty) Regular maintenance Pre investment due diligence
Industry is not regulated Extremely non liquid asset class Tax implications on exit unlike ULIP
Ideal solution…
ULIPs provides good mix of equity and debt
Paanch ka Funda
Investments
Flexibility
ProtectionTransparency
Tax savings
ULIP : PAANCH KA FUNDA
Paanch ka Funda
Investments
Flexibility
ProtectionTransparency
Tax savings
ULIP : PAANCH KA FUNDA
The money from different policyholders are invested in a “Fund”
How is the policyholder’s money invested?
FundFund
Who takes care of investments?
Funds managed at home
Just like the head of the family
manages the home funds
Funds managed under ULIP
The fund manager manages all investments
pertaining to the fund under ULIP
Where is the money invested ?
Policyholder can choose from a basket of equity, debt and balanced funds
Investors are allotted “Units” which represent the composition of their investment
Fixed Portfolio Strategy
Investor awareness
High
High
Low
LowLife Cycle Based
Portfolio Strategy
Funds strategies
Investor involvement
Choice of portfolio strategies
Fixed portfolio strategy
• Option to allocate your savings in the funds of your choice
Life cycle based portfolio strategy
• A unique and personalize strategy to create an ideal balance between equity and debt, based on your age
Fixed Portfolio Strategy
• This portfolio strategy offers the flexibility of allocating investments as per customer’s choice
• Customers can choose their own asset allocation using any of the following available funds:
ICICI Prudential offers various Funds for investment
Performance – Maximiser
Superior Fund Performance
https://www.iciciprulife.com/public/Fund-Performance/Ensure.htmAs on Feb 28, 2015
Performance – Protector
Superior Fund Performance
* calculated with effect from 2-Apr-02, as benchmark did not exist before this dateCRISIL index excludes Fund Management Charges (FMC) effective April 01, 2013https://www.iciciprulife.com/public/Fund-Performance/Performance-Benchmark.htmAs on Feb. 28, 2015
Lifecycle based portfolio strategy
Initial allocation based on customer’s age
Rebalancing on a quarterly basis to maintain asset allocation
As age progresses, allocation changed to suit change in Life stage
In the last 10 quarters corpus shifted from equity to debt to ensure safety of your money as you approach the age of 75
Age Band Allocation
Multi Cap Growth Fund Income Fund
0 – 25 85% 15%
26 – 35 75% 25%
36 – 45 65% 35%
46 – 55 55% 45%
56 – 65 45% 55%
66 – 80 35% 65%
Age based allocation table
Flowchart for lifecycle based strategy
NAV CHANGES ALTER THE EQUITY-DEBT
RATIO
WITH CHANGE IN AGE, ALLOCATION IS
ALTERED
Customer
Policy Inception
EQUITY
75%
DEBT
25%
ALLOCATIONS BASED ON AGE
Every Quarter
PORTFOLIO REBALANCING
75%25%50% 50%
75%25%
Age = 30
Every shift in age band
DEBTEQUITY
65%35%
Age = 36
TOWARD THE END OF TERM
Last 10 quarters
65%35%100%
SAFETY
Success Mantra…
• Our solutions are meant for achieving long-term financialgoals through proper financial planning• We do not recommend opportunistic investing based on market
movement
• Recommend investing in debt and equity, rather than onlydebt or only equity
• Tools are available to manage short term volatility• Automatic Transfer Strategy
• Switching
Don’t Time the Market. Spend Time in the Market
Paanch ka Funda
Investments
Flexibility
ProtectionTransparency
Tax savings
ULIP : PAANCH KA FUNDA
Flexibilities relating
to….
Investment
Liquidity
Choice of SA, premium & term
ULIP offers numerous flexibilities to its investors
Let’s explore how will this benefit our customer
Helps in making the most even in a volatile market
FREE switches which vary from product to product with minimum Rs 2000 per switch
Subsequent switches charged Rs. 100/- per switch
Switching: Policy holder can transfer investments from one fund to another
Helps the policy holder choose as to where his future money would get invested
Policy holder can exercise this option when the Premium falls due
Allocation of previous premiums remains unaffected
Premium Redirection: This option allows the policy holder to change the allocation of future premiums
Extent of withdrawal and frequency varies from plan to plan
The life assured must be at least 18 years of age
Partial Withdrawal: Option to withdraw money from policy after the minimum lock in period of 5 years
Helps the policy holder utilize part of his funds during financial exigencies
Can be availed only after the completion of 5 policy years
Policy terminates and Fund Value is paid to the policyholder
Surrender: Policy holder has an option to discontinue his policy before the maturity
Settlement options: Policy holder has flexibility in receiving maturity benefit
Lump sum: The entire fund value in one go
Settlement option: Receive the money in installments.
The client can either receive the benefit as :
Helps the policy holder in receiving his fund value systematically over a period
Automatic Transfer Strategy: Transfer small amount every month from debt to equity
Funds get transferred every
month on a fixed date (1st or
15th) from Income Fund to the
chosen equity
Policy holder can suggest a fixed
amount which will be
automatically transferred every
month on a fixed date – minimum
amount Rs.2000
Money Market
Assists the client to optimize his return by way of Rupee-Cost averaging
You have to buy oranges over 10 days. The prices will be published
You are given Rs. 1000
Let’s take an example of rupee cost averaging
Your task is to buy maximum number of oranges at the least possible price
Day 1 - Rs. 30
Day 2 - Rs. 25
Day 3 - Rs. 20
Day 4 - Rs. 24
Day 5 - Rs. 19
Day 6 - Rs. 22
Day 7 - Rs. 26
Day 8 - Rs. 16
Day 9 - Rs. 13
Day 10 - Rs. 11
Cost of oranges per day (Activity)
Average Cost of acquisition = 994/ 53 = 18.8
Average unit price = 206/ 10 = 20. 6
Activity
Buy regularly and systematically, which will benefit you through a lower cost of acquisition. This is also called Rupee cost averaging
Day Price Amount Invested Units Acquired
1 30 90 3
2 25 100 4
3 20 100 5
4 24 96 4
5 19 95 5
6 22 110 5
7 26 104 4
8 16 96 6
9 13 104 8
10 11 99 9
Total 206 994 53
Flexibility…
Sum Assured depending on the needs of the client
Amount of premium
Term depending on his financial goal
ULIP also offers client, multi capability of choosing:
Flexibility
Paanch ka Funda
Investments
Flexibility
ProtectionTransparency
Tax savings
ULIP : PAANCH KA FUNDA
Provides security to the policyholder’s
family in the form of death benefit
ULIP offers protection
Death Benefit: Protection is provided in the form of death benefit, which varies according to the plan selected
There are 2 variants of death benefit:
Option 1
• SA + FUND VALUE
Option 2
• SA or the FUND VALUE which ever is higher is paid
Investor can choose the amount of Life cover from the multiple options provided
* Option 1 & 2 are dependent on product features available
Paanch ka Funda
Investments
Flexibility
ProtectionTransparency
Tax savings
ULIP : PAANCH KA FUNDA
ULIPS offer a high degree of transparency
All charges in the plan are made known to the customer
Premium Net invested
amount=-Mortality Charges
Other Charges
+
Charges in ULIPS
Mortality charge – Cost of life insurance cover
Other Charges Allocation charge – Policy issuance and entry load charge
Policy Admin – Deducted every year or for few years for service provided
Fund Management Charge – Deducted every year for managing the Customer’s investment through Fund management experts
Reduction in Yield
Gross Return : 10%
Impact of Charges : FMC + PAC (2.25%)
Net Return : 7.6%
Therefore RIY 2.4%
When it comes to investment products High RIY is not good
RIY of 0.7% means that on a 8 % fund return, the customer gets at least 7.3% post charges
Conceptually, this is applicable for all type of investment products
EBI Sample
Paanch ka Funda
Investments
Flexibility
ProtectionTransparency
Tax savings
ULIP : PAANCH KA FUNDA
Premium paid towards ULIPs up to 1.50 lakhs are eligible for tax benefits u/sec 80C
Maturity proceeds are tax free in the hands of the customer under sec 10 (10D) if the death benefit is minimum 10 times of premium
ULIP’s are an efficient tax saving instruments
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