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Will the ULIP Plan yield decent return if I keep investing

I have purchased 2 IPRU Wealth Builder II 105L139V01 policies one of 50K in the year 2013 and other of 1.2lac in the year 2014 in a hurry to save tax for the respective financial years. Now I have been reading a lot about Equity and MF and now scared as most financial advisor's don't suggest ULIP plans. My query is whether should I continue investing or should I discontinue and surrender. Will the ULIP plan yield decent returns if I keep investing? My premium renewal date is near, Please help?

Jan 8, 2016 by Avinash, Navi Mumbai  |   Life Insurance

As a rule in the future, you should not buy life insurance policies simply for the purpose of saving taxes. The primary purpose of a life insurance policy is to provide financial security to your family in the event of an unfortunate death. For the purpose of tax savings, mutual fund Equity Linked Savings Schemes (ELSS) or National Pension Scheme (NPS) or Public Provident Fund (PPF) are better investment options, depending on your risk appetite. If you want to create long term wealth ELSS is the best tax saving investment option. In the last 2 years, top performing ELSS funds like Reliance Tax Saver, Axis Long Term Equity Fund and BirIa Sun Life Tax Relief 96, have given 30% or more compounded annual returns. If you are investing for retirement, then you can consider NPS. In fact, by investing in NPS, you can save an additional Rs 50,000 over and above the Section 80C limit of Rs 1.5 lacs. If you want to make a risk free tax saving investment, then PPF is the best investment option.

Now that you have already invested in IPRU Wealth Builder II policies, there is no point discussing what if scenarios except as a guidance for future tax planning decisions. Let us now focus on your ULIP policies and discuss its various characteristics. IPRU Wealth Builder II is an Unit Linked Insurance Plan (ULIP). You should know that like mutual funds, ULIPs are subject to market risks. You have not provided sufficient information in your query regarding your ULIP investment. For example, you have mentioned if you bought a single premium or regular premium policies. You have not mentioned your age and sum assured of your policies. You also have not mentioned the funds selected by you in your ULIP policy. IPRU Wealth Builder II Plan offers 7 fund choices, Bluechip Fund, Income Fund, Maximiser Fund V, Money Market Fund, Multi Cap Balanced Fund, Multi Cap Growth Fund and Opportunities Fund. The Multi Cap Growth Fund and Opportunities Fund are among the top performing equity oriented ULIP funds. Both funds gave over 20% returns in the last 2 years. The Multi Cap Balanced Fund is one of the top performing hybrid equity oriented ULIP fund. The Income Fund is one of the top performing debt oriented ULIP funds. The rest of the funds are either average or below average performers. You should evaluate that, the performance of your ULIP fund and then make a decision. You should also note that, your actual returns will be lower than the returns given by your ULIP funds. This is because your entire premium is not invested in units of the funds. For IPRU Wealth Builder II plan, premium allocation charges are deducted at the rate of 6% in year 1, 5% in year 2, 4% from years 3 to 5 and 2% thereafter. Further, Rs 6000 is deducted every year for policy administration charges in the IPRU Wealth Builder II plan. So on an annual premium of Rs 1 lac, Rs 12,000 is deducted in year 1, Rs 11,000 is deducted in year 2 and so on so forth, towards these charges. An additional amount is deducted towards mortality charges. Mortality charge is the cost of your life insurance cover. Mortality charges depend on your age and sum assured. For a 30 year old male with Rs 10 lac sum assured, Rs 1600 can be deducted for mortality charge. For a 40 year old male with Rs 10 lac sum assured, mortality charge can be Rs 2700. After, deducting premium allocation, policy administration and mortality charges, the balance amount is invested in units of the ULIP funds. You should read your policy document carefully, to understand the applicable charges or consult with your insurance agent. Obviously, in the early years of your policy life the returns will be much lower because of these charges. In the long term, once the premium allocation charge reduces the returns will improve.

If you want to surrender your policy, discontinuation or surrender charges will apply. If you bought a single premium policy, surrender charges after 3 years is 0.25% of the premium or Rs 4000, whichever is lower. The surrender charges after 4 years is 0.1% of premium or Rs 2000, whichever is lower. For a regular premium policy, surrender charges after 3 years is 3% of the annual premium or Rs 4000, whichever is lower. The surrender charges after 4 years is 2% of annual premium or Rs 2000, whichever is lower. If you surrender your policy after 5 years, no surrender charges apply. You should make an informed decision based on the considerations discussed and potential returns from other tax planning investments. You should consult with a financial advisor, if required, to make the right decision. Whatever your decision, you should ensure that you have adequate life insurance cover for your family and if required buy term life insurance policy to ensure financial security of your family.

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