The pros and cons of investing in ULIPs

In an online chat with Get Ahead readers on August 26, Sanjay Tripathy, senior executive vice president, marketing, product, digital and e-commerce, HDFC Life, answered their queries on ULIPs.

Here's the unedited chat ranscript:

Akil Hegde: can i Continue With my BSLI Saral Jeevan it showing loss?

Sanjay Tripathy: I suggest you remain invested for the complete policy term to reap maximum benefits. Contact your financial advisor for a detailed assessment of your portfolio

Gadgets-Gaming: Sir, if your product allows 100% premium allocation then could you plz explain how you make provisions for servicing the insurance part? I am sure you don't insure your customers from your own pocket :-) Plz explain

Sanjay Tripathy: Since click2invest is only sold online, we have passed on the benefits of lower expenses to the customer. Not only do you get 100% premium allocation, the policy admin charge is also zero in this plan. We only charge 1.35% of fund management fee and mortality as per your age.

NARSING RAO: WHETHER CHILDREN POLICIES ARE BETTER IN GIVING RETURN THAN THE ORDINARY ULIPS

Sanjay Tripathy: The returns in any ULIP are market linked. Children plans offer additional benefit of premium waiver i.e. in case of unfortunate demise of a parent, the policy continues and the child receives the benefit

John: Why are the costs associated with ULIPs so high? Aren't companies like yours making loads of money by charging us all kinds of fees on ULIPs at our cost?

Sanjay Tripathy: Dear John, we offer a new age ULIP called Click2invest with minimal charge structure which gives you 100% premium allocation resulting in higher returns.

Alex: Sir, please tell me why do insurance companies, including yours, mis-sell ULIps?

Sanjay Tripathy: ULIPs offer a fifteen day window (free-look in period) during which you can choose to return the policy without any penalty, if you are not satisfied with the product features. If you still feel that you have been mis-informed about any product, you can reach out to the insurance company or the insurance ombudsman.

Dheeraj Ajwani: Had bought 3 told to be good ulips in 2007. Sold off almost in negative last month. Better to go for band FD .ULIP only for banks to make money rest dont care for investors at all.

The agent will show only ulip as the investing option and show lucrative returns which is never the case as they get good commission by selling ulips. they show absolute returns % and not the annual returns, they never show bank charges, hidden costs etc. lot of Terms and conditions for buying and whose gonna read all those.

Sanjay Tripathy: ULIPs are a transparent product, which means all the charges and commissions are clearly stated in the benefit illustration. I would suggest that you consult a financial advisor to understand if your investments are in sync with your needs and risk appetite.

Salim: Under what conditions can ULIPs be a better bet?

Sanjay Tripathy: ULIPs being long term product, you can buy a ULIP at any time as it gives you multiple entry points into the market effectively spreading out your risk.

MURALI MADHAVA-M: I am investing in UTI-ULIP for last 10years..for 15yrs scheme..whether i should continue...???

Sanjay Tripathy: I suggest you remain invested for the complete policy term. Markets are doing well currently which can result in better returns for you. Contact your financial advisor for a detailed assessment of your portfolio.

M Srinivas: i have invested in icici, bajaj alliance and sbi ulip. all are below par now. shud i continue or quit?

Sanjay Tripathy: I suggest you remain invested for the complete policy term. Contact your financial advisor for a detailed assessment of your portfolio

Kumar: Hi Sanjay,I am thinking about to invest Rs 36000 to Aviva I growth ULIP plan. Could you advise me that i am going in right direction.

Sanjay Tripathy: I would not like to comment on this plan, however, you can check out our similar product which you should consider before taking any decision.

Amol Chille: I think a term insurance and investing in mutual funds separately is a better idea than investing in ULIPs. Do you beg to differ, Sir?

Sanjay Tripathy: Every financial product comes with specific benefits, for E.g. you have specific ULIPs for financial planning for children, or women, or for critical illnesses. While you do investment in MFs, you should consider investing in ULIPs to diversify your portfolio and cover risks based on your needs.

Sanjay Tripathy: Our latest ULIP, Click2invest is comparable to MFs.

Umar Khan: What are the costs associated with ULIPs? Won't investors lose money when they invest in ULIPs?

Sanjay Tripathy: If one invests in a disciplined manner for the complete term, one can accumulate a good fund value. However, one should understand the risks associated with ULIPs, they being market linked products. One can reduce risk exposure by choosing debt funds option. Regarding charges, I would like to tell you that our new ULIP, Click2invest offers minimal charge structure which means 100% of your premium is invested giving you higher returns opportunity.

Haresh: I have a ULIP policy from Aviva Life. While I get poor protection the units invested are also no doing well? Shall I continue with this ULIP, Sanjay?

Sanjay Tripathy: I would urge you to reach out to your financial advisor to understand if your current investment matches your needs and then take an informed decision. Things to keep in mind while you make this decision include 1. investment horizon that you may be looking at 2. your risk appetite 3. your current life stage (single, married, with children) and 4. the surplus savings that you can invest

Jayarama: No not all. HDFC LIFE deducts 10% of your premium as commission. Then again every month deduct one unit as maintenance charges. Your money will not double even in ten years. Go for Post Office operated pension scheme; 9.38% pension and monthly paid new scheme wef 15 Aug 2014

Sanjay Tripathy: One should not just compare investment returns of two financial instruments without taking into consideration other benefits / features such as flexibility of fund options, death benefit etc

Sukhvinder Agah: Why do you think are ULIPs a good bet?

Sanjay Tripathy: They are better as they offer investment return opportunity along with protection benefits. Online ULIPs are the way to go in future as they offer lower charges and greater benefits.

Aatish Jagmanani: What are the top 5 pros and cons of investing in ULIPs?

Sanjay Tripathy:

Pros:

1. ULIPs are transparent wherein you can control where your money is invested

2. They give protection benefit along with investment returns

3. They give flexibility of multiple fund options

4. You can get additional benefits for critical illness, accidental death, disability etc

5. Gives option for staying invested for a long time thereby making your investment strategy more disciplined

However, ULIPs have the following limitations that one should consider:

1. lock-in period of 5 years

2. ULIPs have fixed policy term and premium payment term therefore one should buy it keeping in mind a long term horizon

3. At higher ages, protection benefit becomes expensive so one should understand the benefit illustration clearly before buying

Chinmay Thakur: Dear Tripathiji, why should I choose a product that offers insurance and investment together? Won't I be better off by buying both these products seoparately?

Sanjay Tripathy: Dear Chinmay, ULIPs offer the benefit of insurance and investment under one product. In addition ULIPs are more transparent and customer has many flexibilities like fund switch, premium redirection, partial withdrawals and top up premiums.

If you want to invest for a longer tenures of 10-15 years with an exposure to equity markets then ULIPs are better invrestmen tool.

You can also create a customised investment strategy for yourself with multiple fund options

Jaipal Sahani: What are the misconceptions and myths associated with ULIPs?

Sanjay Tripathy: I can think of these two key myths associated with ULIPs

1. ULIPs are expensive and

2. ULIPS offer low returns

Charges are capped by IRDA regulation since Sept 2010. In simple words, overall charges cannot exceed the prescribed limit set by the regulator -- the net reduction in yield cannot be more than 3% for a 10 year term policy.

There are several factors that enable the investor to get a good return:

1. Invest for long terms

2. Your choice for funds and judicious switching, redirection of funds/premiums will ensure that the fund growth is healthy.