How are NULIPs different from ULIPs?

When stock markets do well, investors want to hitch a ride through various investment products. Everybody wants to get a piece of the action. There was a time, not long ago, when United Linked Insurance Plans or ULIPs were considered as bad investment products due to high charges and fees. Plus, there was a lot of misselling by insurance firms and their agents as well, which drove customers away. Then insurance regulator IRDAI stepped in with reforms in 2010. Market linked products are also dependent on market movement. Though ULIPs were reformed, they lacked the bang and appeal. Also, investors who were once bitten became twice-shy. This is also a time when mutual funds witnessed a rise in popularity. Over the last 12-18 months, a new sub-category of ULIPs have emerged. Call them, new ULIPs or NULIPs. Are these any different or just a marketing gimmick? Let's find out.

On paper, NULIPs seem much different. Life insurance companies claim that NULIPs are extremely cost effective and are comparable to mutual funds. You might not hear a lot about them on TV, newspapers/ magazines or see big hoardings. Many of these NULIPs are sold online. That is a reason why they are better as well. Selling a product through offline channels means higher cost of customer acquisition. So, customers/investors buying these NULIPs online get a much better deal. In some cases, NULIPs also return the insurance cost to the investor, making the insurance practically free. Plus, there are a whole lot of other goodies which can potentially enhance investors' returns if they remain invested for the long-term. 

One must understand why people buy ULIPs. Unit linked insurance plans combine the insurance aspect with investment. You may invest Rs 1 lakh a year in an investment, but if you die at the end of 5 years, all your returns will be limited to the Rs 5 lakh invested. On the other hand, if you buy a pure term insurance policy, you will have to die to realize the benefit! This is why combination products try to merge the best of both worlds. ULIPs were designed to replicate this. They give you reasonable insurance so that if you die in the interim, your financial goal is met with the sum assured. In case you live through, the investments done by the ULIP will ensure you get a neat corpus on maturity.

But ULIPs got it wrong somewhere down the line. Huge commissions were being paid to ULIP agents. This was recovered from investors in the name of exorbitant fees. Thankfully, the NULIPs have done away with most such charges. Do remember that unlike Systematic Investment Plans in tax saving mutual funds, ULIP investors can redeem the entire amount at the end of five years even if the premium has been paid in installments. In tax-saving MFs, only units that have completed the three-year lock-in can be redeemed.

Now let us check out some interesting features across NULIPs.

Loyalty additions or bonuses

These are like the extra money given to policyholders in endowment policies. NULIPs give loyalty additions for any person who is paying a hefty premium, say like annual premium of Rs 5 lakh, and who pay premium for long periods, say 10 years. These additions can be usually paid after the 6th policy year.

Return of mortality charges

This is akin to giving free insurance cover. Mortality charges are the cost of insurance cover. Do remember this cost will be added back by the insurance company to your NULIP fund-value after the end of the policy premium. So, expect your fund value to rise by that extend on policy maturity. But not everyone offers this feature.

Fund/wealth/premium booster

On the maturity date, these fund or wealth boosters will be added to the regular premium fund value, provided all due regular premiums have been paid up to the date. The fund booster is given as a percentage of one annualised premium. This booster is payable only for policies where the policy term is 10 years and above in most cases. Some plans have premium boosters that start from 6th year, like loyalty additions. 

Additional allocation

EdelweissTokio Life - Wealth Plus has something called an 'additional allocation'. This plan provides additional allocation every year starting from the 1st policy year till the end of the premium paying term. These allocations are as a percentage of the premium. During the first 5 policy years, extra allocation will be added to the fund(s) along with each premium paid by you within the grace period.

No premium allocation charge

Earlier ULIPs charged hefty premium allocation charge of up to 90-100 per cent of first year premium. With most NULIPs, this is not the case. There is no such charge, which means right from the word go most of your money is invested. There is a fund management charge. For example, Bajaj Life Goal Assure product levies up to a maximum of 1.35 per cent per annum of the NAV for all the funds. There can be a policy administration charge per year. Also, there could be miscellaneous charges levied on per transaction basis. Some plans like the HDFC Life Click2Invest ULIP - Online Unit Linked Insurance Plan has no premium allocation or policy administration charge, but has fund management charge and mortality charges.

Settlement options

NULIPs also provide flexible settlement options. Under this option, you need to choose from settlement term (option of 1, 2, 3, 4 or 5 years etc.); and frequency of pay-out (yearly, half-yearly, quarterly or monthly instalments). This allows you to take a regular stream of payment, instead of lump sum. Lump sum amounts can be wasted on unnecessary spends.

Once you have chosen the settlement term and the frequency, the amount paid out in each instalment will be the outstanding fund value as on that instalment date divided by the number of outstanding instalments. Do note that the investment risk during the settlement period will be borne by you. If the markets fall, your fund value will reduce. Also, no risk cover will be available during the period of the settlement option. Fund management charge can be deducted by insurance company during the period of the settlement option. Alternatively, you will have an option to withdraw the fund value completely, at any time during the period of settlement option

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the 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

When to Sell a Mutual Fund?

Compared to buying a mutual fund, investors often make worst decisions when it comes to selling them

The fact that there are so many mutual funds in India and choosing a suitable one is difficult is now understood by every saver. Everyone has a way around it, whether it's advisors or websites or just asking around. However, there's actually an even more difficult choice that investors face--which funds to sell off and when. Curiously, more knowledgeable and more involved investors face this problem a lot more than others. The reason is those of us who are active and involved investors always have an urge to do something. Such investors generally do well because because they learn, analyse and act more than others. Therefore, they start equating being good investors with doing something, often anything. Unfortunately, along with everything else, in practice, this also translates into being all too ready to sell off their investments.

There are many reasons for selling funds but not all of them are good ones. There can be exceptions but the good reasons tend to be about the investor's own finances and the wrong reasons tend to be about the fund. Let me explain.

Overactive investors give three reasons for wanting to sell off a fund investment. One, they've made profits; two, they've made losses and three, they've made neither profits nor losses. That sounds like a joke but isn't. Someone will say, 'Now that my investments have gone up, shouldn't I book profits?' Alternatively, 'This fund has lost a bit of money recently, shouldn't I get out of it?' And finally, 'The fund has neither gained nor lost, shouldn't I sell it.' Basically, what I'm saying is that investors who have a bias for continuous action can create a logic for taking action out of any kind of situation.

And which is the right reason for selling a fund? Obviously, none of the ones above. By themselves, they are not legitimate reasons for selling a fund. The first comes from the spurious 'booking profits' concept that advisors have promoted. Booking profits doesn't make sense for stocks, and it makes even less sense for mutual funds. In both, this attitude makes investors sell their winners and hang on to their losers. In mutual funds, the whole point is that there is a fund manager who is deciding for you which stocks to sell and which to buy. If the fund manager is doing this job well, then the fund is making good returns. Therefore, selling a fund that has made good returns is the exact reverse of what investors should be doing.

Let's come to the second reason now. While selling underperformers is a legitimate idea, you need to evaluate the timeframe and the degree of underperformance. Investors try to sell funds that have generally excellent performance but may have underperformed other funds by small margins. Someone will say that over the last year, my fund has generated 25% but five other funds have generated 30% so I will switch to those. This switching based on short-term past performance is counterproductive and does nothing to improve your future returns. Only if a fund underperforms consistently for two or more years.

So when should investors actually sell their funds? The right answer is that they should be guided by their own financial goals. You should sell a fund and get your money out when you need it. Let's say you have invested for five or ten or fifteen years, continued your SIPs, and now the money has grown to what you need. You may need to make a down payment for a house, or pay for your child's education, or whatever else. If you're getting close to that time, you should sell and redeem, irrespective of the state of the market. In fact, unless it's an expense that can be postponed, you should start acting one or two years before time. Withdraw the money from the equity fund and start parking it in a liquid fund. You can use an automated STP (Systematic Transfer Plan) for this which will be convenient.

In a manner of speaking, the primary goal of investing is not to invest but to sell because that's when you achieve your goal. Be guided by that.

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the 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

How to get Forgotten Investments

Forgotten investments are a big issue. A massive amount of money lies in banks, insurance companies and housing finance companies. It is more common amongst the older folks where they speak about the old share and deposit certificates they lost and forgot about them completely. This is the reason that the money lies unclaimed with financial institutions. The concerned companies and financial institutions, too, fail to locate investors or policyholders as contact details changes are not updated with the company. Also, once the original document is lost, it becomes difficult to claim the amount that is due to them.

You can reclaim your money even after 10 years, after following these steps:-

1) If an account has not been operated for 10 years, or any amount remains unclaimed for more than 10 years, it is transferred to the Reserve Bank of India's Depositor Education and Awareness Fund Scheme

2) An investor can claim the money, or operate his account, even after such a long gap by approaching his bank

3) The bank will claim the money back from the fund

4) If no claim has been made for 10 years after maturity of a traditional insurance policy, the money gets transferred to the Senior Citizen Welfare Fund (SCWF)

5) This money can be claimed within the next 25 years by providing KYC details and providing authenticity.

Sometimes, even after an asset in the form of investments is passed on by grandparents and parents, the nominees and legal heirs fail to claim them as they are not aware of the existence of those assets. It happens in the absence of a Will. As a countermeasure, the RBI has mandated that banks should publish details on their websites of accounts that have remained inoperative and inactive. It has directed the insurance companies also to update details of unclaimed funds on their websites.

In cases where your parents leave you a fortune but don't assign you the nominee of any of the shares, the problems can increase. It can be an arduous task to obtain a succession certificate from a district court. One can take help from the asset recovery companies. The process broadly involves filing legal claims, tracing the investments, and approaching the concerned companies. Generally, in a situation where your parents passed away without appointing you the nominee of the bank account, then you will have to submit a succession certificate or legal heir certificate. The legal heir will have to produce other documents like KYC details and NOC from other legal heirs.

In a situation where, as an investor, you have lost your share certificate and do not even remember the folio numbers of the holdings, then you should get in touch with the company directly. You will require to write down mentioning your personal details and provide the KYC documents. The company shall authenticate the applicant and then provide information about the holdings after going through the shareholding list.

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the 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

Income Tax benefits from Life Insurance

Thanks to Section 80C of the Income Tax Act, you don't have to pay tax on ₹1.5 lakh of your salary—you can deduct this amount from your taxable income. But this deduction is allowed only for certain expenses and investments.

Premiums that you pay for a life insurance policy is one such expense, but did you know that the life insurance cover needs to be at least 10 times the annual premium that you pay to be eligible for tax benefits?

Income tax rules

Under Section 80C, premiums that you pay towards a life insurance policy qualifies for a deduction up to ₹1.5 lakh, while Section 10(10D) makes income on maturity tax-free if the premium is not more than 10% of the sum assured or the sum assured is at least 10 times the premium.

But if the sum assured is less than 10 times the premium—for instance you pay ₹1 lakh as premium for a sum assured of ₹5 lakh—you will get a deduction on the premium up to 10% of the sum assured. In the example, your deduction will be ₹50,000 and not ₹1 lakh (₹50,000 is 10% of ₹5 lakh).

Also, in case of death, the sum assured that's paid to the nominee continues to be tax-free. But, on maturity, since the policy doesn't meet the qualifying criterion for tax benefit, the income will be taxed at the marginal tax rate.

In fact, in order to ensure compliance, if the maturity proceeds exceed ₹1 lakh, then a tax deduction at source (TDS) will apply and the insurer will deduct 1% as TDS if the PAN of the policyholder is available.

Why does it matter?

If you are buying a term plan, then maybe you don't have to delve into the nitty-gritty because the sum assured in a term plan is several times the premium that you pay.

However, for insurance-cum-investment plans like unit-linked insurance plans or endowment and money-back insurance plans and single premium policies, looking at the insurance limit becomes important.

This is because, for policy holders below 45 years of age, insurance plans now offer a minimum sum assured of 10 times the annual premium, but those above 45 years may get a sum assured that is seven times the annual premium. Even in case of single-premium plans, the sum assured may be less than 10 times the premium.

But such policies will not qualify for tax benefits, so make sure you go through your insurance policy carefully.

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the 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

Motilal Oswal Focused 25

Motilal Oswal Focused 25

1/3 year return: 9.54 /9.91%

Top 10 holdings (%): 62

Top 3 holdings: HDFC Bank, Maruti, kotak Mahindra Bank

THE FUND manager aims to own compact portfolios of quality stocks with secular long-term growth prospects, with low portfolio churn. The fund prefers to restrict its holdings to no more than 25 companies.The fund manager follows a bottom up approach to stock picking and is index agnostic and does not hesitate in taking large concentrated bets in its portfolio. Stocks like HDFC bank, Kotak Bank have helped it outperform.

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the 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