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Pl suggest if I should use fund switching in HDFC Life ULIP Click To Invest

I bought HDFC Life Ulip Click to Invest on 15 Feb, 2016. I invested 40% in Income Fund, 40% in Balance Fund and 20% in Opportunity Fund. Is it my right decision? I am new and do not know about market up-down. Plz. Suggest me, I will be used Fund Switching. I will be very thankful for your suggestion?

Mar 7, 2016 by Udham Singh, Mansa  |   Life Insurance

You should be clear about investing objectives. Unit linked insurance plans are hybrid life insurance cum investment products. A portion of your premium goes to secure life cover for your family and a portion of the premium goes towards investments in the units of the funds chosen by you. Also you should know that ULIPs are market linked investment products and therefore are most risky than traditional life insurance products. However, ULIPs can give higher returns than traditional life insurance products in the long run, provided you continue your policy for 10 to 15 years or more. We have discussed a number of times in our blog, that it always more prudent to see life insurance and investment as two separate financial goals. As far as life insurance is concerned we had discussed in our life insurance blog that term life insurance is the best life insurance product because you can buy sufficient life cover at the lowest cost through term plans (please see our article, Why are non term life insurance plans detrimental to your financial needs). For investments, if you are ready to market risks, mutual funds are better products than ULIPs. We have compared ULIPs versus a combination of term policy and mutual funds in our article, Term Insurance and Mutual Fund or ULIP: Which is a better option? Compared to mutual funds, ULIPs have two major drawbacks:-

  1. High Costs in the initial years: In the initial years a lower portion of your premium goes towards investments. Therefore the return in the first few years of policy life is less. However, costs differ from product to product.

  2. Lower Flexibility: ULIPs offer less flexibility than mutual fund products, even tax saving mutual funds.

HDFC Click 2 Invest, however, is the lowest cost ULIPs in the market and therefore a greater portion of your premium is invested in units of the funds selected by you compared to other ULIPs. Unlike most ULIPs, there are no premium allocation or policy administration charges. The only applicable charges are the mortality charges (for your life cover) and the fund management charges. The lock-in period is 5 years. If you surrender your policy before 5 years, it will be treated as a discontinued policy and accordingly benefit will be paid. If you surrender after 5 years then there are no surrender charges. There are 8 fund choices and up to 4 fund switches every year are free. Your fund selection should be based on your investment goals and risk tolerance. Your selection indicates that you have moderately conservative risk profile.

While, HDFC Click 2 Invest is the cheapest ULIP, unfortunately the performance of the funds have been lagging behind many of the top per performing ULIP funds. The performance of the Income Fund and the Balanced Fund has lagged behind its peers in the last one year. However, the opportunities fund has less losses than many other similar ULIP funds. The lower costs can make up for the lower returns. HDFC click 2 Invest does not have a long term track record because it is a relatively new product and therefore it is too early to draw any conclusion. Even your investment is very recent. You can continue to invest in your policy for a period of time and see if the performance meets your expectations.

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