Though Insurance Regulatory and Development Authority of India (IRDAI) insists that ULIPs (Unit Linked Insurance Plan) should not be sold focussing on their capital appreciation aspect, many people actually treat the instrument for this attribute apart from their insurance protection.
And it’s not without reason. ULIPs owe their innovativeness, and therefore, their attraction to the capital appreciation they provide apart from the insurance protection.
The arithmetic of ULIP returns
Let’s take a close look at the sort of returns investments in ULIPs can fetch.
An ULIP calculator will tell you how your returns can vary with time and quantum of investment.
ULIP calculator: Rs 5000 a month
Let’s start with an investment of Rs 5,000 a month. If one keeps investing this amount for 10 years with an expectation of 8% — a highly achievable one – the amount that one can expect after 15 years is Rs 13.52 lakh. In this period of 10 years, the nominal total investment would be Rs 6 lakh.
Let’s tweak the rate of return to 10%. All the other parameters in the above scenario remain unchanged. In this case, the total amount available to the investor after 15 years becomes Rs 16.63 lakh.
Rs 8K a month
Let the investor now raise the monthly investment amount to Rs 8,000 and keep the rate of return at 8%. The period of investment is also stretched to 15 years (and not 10 years as in the earlier example). In this instance, the total payout after the 15th year rises to Rs 27.86 lakh on a nominal aggregate investment of Rs 14.40 lakh.
If the rate of interest is raised to 10%, the total amount increases to Rs 33.43 lakh on the same total investment made by the person.
Part premium in MFs
The appreciation of capital comes from the fact that the premium of a ULIP is divided into two parts. One part is used to provide insurance cover on the life of the investor and the rest is invested in mutual funds. Another significant point is that the investor can choose the mutual funds where his/her money will be channelised.
This investment can depend on the risk appetite of the policy buyer. Accordingly, he/she can choose equity or debt funds or a combination of debt and equity.
However, it is advisable that one consults a qualified investment advisor before committing hard-earned money in any instrument.
Apart from offering insurance shield on your life, ULIPs offer capital appreciation. The twin benefits attract a lot of investors. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
