In this article you will be able to understand how beneficial it is to have remained invested in Mutual Fund versus ULIP
For our example, Lets take Example of ICICI Pru Guaranteed Wealth Protector Plan
Didn't that word "GUARANTEED" immediately appeals you, and we prefer to invest in avenues where the principal amount is safe. It may not be wise, but that's our immediate reaction when asked about investing. But that is where we are wrong and many insurance agents even doesn't know what does the term guaranteed means
Lets go ahead with our Example
ICICI Pru Guaranteed Wealth Protector Plan is a ULIP plan where you have premium paying term of 1 year and 5 years with a lock in period of 5 Years.
In case if you paid a premium for 5 Years then Sum Assured is 10 times and for Single Premium it is 1.25 Times.
ICICI Pru Guaranteed Wealth Protector Plan will be investing 60% in Equity Market and 40% in Debt Market with Life Growth & Life Income Fund respectively which would be reduced to 90% in Debt & 10% in Equity at the end of 10th year that is maturity year
You will get tax benefits on premiums paid as per section 80C so in our comparison we would also include a Tax Savings (Balanced) Mutual Fund
Illustrations
Annual Premium : Rs 1,00,000
Sum Assured : Rs 10,00,000
Age at Entry : 35 Years
Model of Premium Payment : Annual
Premium Paying Option : 5 Years
Assured Benefit at Maturity : 5,05,000
Now Let us calculate the charges levied by fund
Premium Allocation Charges are 6%,5%,4%,4% in annual premium payment mode for 1st , 2nd , 3rd , 4th and 5th year respectively , After 5 Years there are no charges
Policy Administration Charges are from 1st to 5th year 0.21% p.m. (2.52% p.a) and from 5th year onwards 0.10% (1.20% p.a)
there is also a charge called Fund Management Charge which is adjusted against NAV
Below are the details for units accumulated
Nav for ICICI Pru Guaranteed Wealth Protector - Life Growth Fund as on 20/05/2016 is 13.09
Below are the details for units accumulated
Nav for ICICI Pru Guaranteed Wealth Protector - Life Income Fund as on 20/05/2016 is 12.5512
Must Read : Best 3 Mid Cap Fund Churning Money for Investors
Fund Value as on 20/05/2016
13889.33 X 13.09 = Rs 181,811
9901.14 X 12.512 = Rs 123,883
Total = Rs 305,644
Since you paid 3 years premium amount to Rs 3 Lakhs and currently your fund value is 305644 a gain of Rs 5644 and XIRR 6.39% p.a. along with an insurance of 10 Lakhs
If we buy only mutual funds then we wont be able to cover the insurance part, since insurance is not an investment but a risk mitigation tool we would go ahead with Term Insurance for a male aged 35 years and rest would be invested in SIP in Birla Sun Life Tax Relief 96 (Growth Fund). I have written an article on "How much insurance do i need" which would help you to select the exact insurance amount
Total = Rs 305,644
Since you paid 3 years premium amount to Rs 3 Lakhs and currently your fund value is 305644 a gain of Rs 5644 and XIRR 6.39% p.a. along with an insurance of 10 Lakhs
If we buy only mutual funds then we wont be able to cover the insurance part, since insurance is not an investment but a risk mitigation tool we would go ahead with Term Insurance for a male aged 35 years and rest would be invested in SIP in Birla Sun Life Tax Relief 96 (Growth Fund). I have written an article on "How much insurance do i need" which would help you to select the exact insurance amount
Well, The reason for selection of Birla Sun life tax relief is, it is a Tax Savings and Balanced fund with target allocation of 80%equity & 20% debt and money market securities.
From the above image we had to pay a premium of Rs 5254/- p.a + service tax 761.83 = Rs 6,015 every year
We would be investing
1,00,000 (Original Premium)
=93,985 divide by 12 i.e 7,832 rounding off Rs 7800 in SIP
In ULIP you would have paid premium every 1 year and SIP you pay monthly , but remember you are paying your premium advance to Insurance Companies and that is not the case in SIP and logically you are losing Interest on the premium amount paid initially to insurance companies.
SIP Calculation is below where in we would have paid 210600 for 27 months and our investment value appreciated to Rs 237828 as on 20/05/2016
Remember : We haven't purchased units of Rs 1 Lakhs in third year instead we are going with SIP mode that is the reason our investment is still below 3 Lakhs compared to ULIP.
Below is the calculations where every year we have purchased a lump sum of Rs 93,985 for Birla Sun life tax relief fund
from the above sheet it is clearly visible that Mutual Funds Versus ULIP, MF always have an upper hand
I hope you enjoyed reading the article , it takes time to write articles with facts and figures, request you to please spread the word. A good way to start is to share this page on your social circle using floating social share bar on the left.
Who doesn't like a financial healthy life,In case if you want one contact me for Financial Planning, please do drop an email to me at vipuls1979@gmail.com. I would be happy to assist you
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