insurance ulip
TRANSCRIPT
Introduction to Unit Linked Insurance Plans
Investment Options :Mapping to Needs
Equity Markets
Unit Trusts/ Mutual Funds
Bank Fixed Deposits
Post Office Deposits
Real Estate
Insurance
Creation of wealthCreation of wealth
Secured returnsSecured returns
Estate and legacy creationEstate and legacy creation
Financial Protection for family in case of death, disability and
disease
Financial Protection for family in case of death, disability and
disease
Risk vs Return
Risk of the Instrument SelectedAre you willing to face potential loss for a chance of higher
gains?
Risk of the Instrument SelectedAre you willing to face potential loss for a chance of higher
gains?
Risk taking AbilityAre you willing to accept lower returns with high security?
Risk taking AbilityAre you willing to accept lower returns with high security?
Chance of Returns
Risk
Selection of Instrument with Goal in mindWhat is the instrument that you would prefer to invest in for
achievement of the goal?
Selection of Instrument with Goal in mindWhat is the instrument that you would prefer to invest in for
achievement of the goal?
Risk Return Profile
Risk
Return
Gambling
CommoditiesShares
Mutual Fund/Unit
TrustCompany
FD
Company Bonds
Government Bonds
Bank/Post Office
Minimum RiskMinimum Risk
Maximum RiskMaximum Risk
Insurance
ULIP
*Source: BSE Index
NO. YEAR END SENSEX ROLLING 1 YEAR
GROWTH
ROLLING 3 YEAR
GROWTH
ROLLING 5 YEAR
GROWTH
ROLLING 7 YEAR
GROWTH
ROLLING 10 YEAR
GROWTH
ROLLING 15 YEAR
GROWTH
ROLLING 20 YEAR
GROWTH
0 31-Mar-79 100.00
1 31-Mar-80 128.57 28.57%
2 31-Mar-81 173.44 34.90%
3 31-Mar-82 217.71 25.52% 29.58%
4 31-Mar-83 211.51 -2.85% 18.05%
5 31-Mar-84 245.33 15.99% 12.24% 19.64%
6 31-Mar-85 353.86 44.24% 17.56% 22.43%
7 31-Mar-86 574.11 62.24% 39.45% 27.03% 28.33%
8 31-Mar-87 510.36 -11.10% 27.66% 18.57% 21.76%
9 31-Mar-88 398.37 -21.94% 4.02% 13.48% 12.60%
10 31-Mar-89 713.60 79.13% 7.51% 23.79% 18.47% 21.70%
11 31-Mar-90 781.05 9.45% 15.22% 17.15% 20.50% 19.76%
12 31-Mar-91 1167.97 49.54% 43.12% 15.25% 24.96% 21.00%
13 31-Mar-92 4285.00 266.88% 81.66% 52.97% 42.76% 34.68%
14 31-Mar-93 2280.52 -46.78% 42.88% 41.73% 21.76% 26.82%
15 31-Mar-94 3778.99 65.71% 47.85% 39.54% 33.08% 31.43% 27.37%
16 31-Mar-95 3260.96 -13.71% -8.70% 33.07% 35.02% 24.85% 24.04%
17 31-Mar-96 3366.61 3.24% 13.85% 23.55% 24.79% 19.33% 21.84%
18 31-Mar-97 3360.89 -0.17% -3.83% -4.74% 23.16% 20.72% 20.00%
19 31-Mar-98 3892.75 15.82% 6.08% 11.28% 18.75% 25.59% 21.41%
20 31-Mar-99 3739.96 -3.92% 3.57% -0.21% -1.92% 18.01% 19.90% 19.85%
21 31-Mar-00 5001.28 33.73% 14.15% 8.92% 11.86% 20.39% 19.30% 20.09%
22 31-Mar-01 3604.38 -27.93% -2.53% 1.37% -0.67% 11.92% 13.02% 16.38%
23 31-Mar-02 3469 -3.76% -2.48% 0.64% 0.89% -2.09% 13.63% 14.85%
24 31-Mar-03 3049 -12.11% -15.21% -4.77% -1.41% 2.95% 14.53% 14.27%
25 31-Mar-04 5528 81.31% 15.32% 8.13% 7.37% 3.88% 14.62% 16.85%
26 31-Mar-05 6492.82 85.14% 23.24% 5.36% 10.34% 2.64% 15.16% 16.55%
27 31-Mar-06 11356.95 57.17% 55.01% 25.80% 17.20% 12.16% 16.37% 17.01%
10/27 5/25 3/23 3/21 1/18 0/13 0/8
30.16% 19.41% 17.39% 17.60% 17.54% 12.70% 16.98%
Probability of Loss
Avg. returnThis shows the investments made in equity over a long term period. The breakups are for a number of terms. The statistical data proves the fact that one has to give time to the market rather than finding the right time for the market.
This shows the investments made in equity over a long term period. The breakups are for a number of terms. The statistical data proves the fact that one has to give time to the market rather than finding the right time for the market.
Investing in equities gives an opportunity for higher returns*.
Maximum Return?
Start Early, Invest Steadily
Stay More, Earn More
Start Early, Invest Steadily
Stay More, Earn More
Mantra
… The magic of Systematic Investments
* Investments are subject to market risk
Inflation
Inflation is a gradual price rise in an economy and reduction in the purchasing power of money.
Beat Inflation?
– Your money can beat inflation, if it grows atleast at the inflation rate to maintain your standard of living.
Power of Compounding
AA
BB
CC
Saves for only 10 years Saves for only 10 years
Saves for 20 years Saves for 20 years
Saves for 30 yearsSaves for 30 years
Since C will save for 30 years, he needs to save the least.. Because
of the power of compounding.
Since C will save for 30 years, he needs to save the least.. Because
of the power of compounding.
A needs to save the most, since he will be saving only for 10 years
A needs to save the most, since he will be saving only for 10 years
A,B & C need Rs. 50,000 per month after they retire, to meet their standard of living
Magic of Compounding
Simply put, it is interest earned on interest. Interest that is earned by the initial capital also earns interest and hence multiplying the rate at which money grows.]Assume a person needs 25 Lakhs for a comfortable retired life.How will he need to save?
Investment Amount Years Expected Return -10% Corpus- 10% Returns
11000 30 10% 25,072,578.57
19000 25 10% 25,419,916.61
33000 20 10% 25,267,998.02
60000 15 10% 25,075,455.95
125000 10 10% 25,819,002.55
Investment Amount Years Expected Return -6% Corpus- 6% Returns
25000 30 6% 25,238,440.44
37000 25 6% 25,768,980.49
54000 20 6% 25,074,959.38
87000 15 6% 25,427,734.12
157000 10 6% 25,857,702.74
Saving just Rs. 25,000 a year can help you create a corpus of Rs. 25 lakhs over 30 years @ 6% returns.
Life Insurance helps provide financial security to your family if something happens to you.
Investment in the market helps you generate more wealth.
Is there a plan which provides both these benefits?
ProtectionProtection
Wealth CreationWealth Creation
* Investments are subject to market risk
Wealth CreationWealth CreationProtectionProtection
Life InsuranceLife Insurance InvestmentInvestmentProtection + Wealth Creation under a single plan
Unit Linked Insurance Plan(ULIP)
Protection + Wealth Creation under a single plan
Unit Linked Insurance Plan(ULIP)
How does a Unit Linked Insurance Plan work?
Customer selects the sum assured or the premium that he/ she wants to pay.
Customer selects the sum assured or the premium that he/ she wants to pay.
Policy Expenses such as fund management charges, Cost of insurance cover get deducted.
Policy Expenses such as fund management charges, Cost of insurance cover get deducted.
This gives you the allocated premium. This is invested in the funds of the customers choice.
This gives you the allocated premium. This is invested in the funds of the customers choice.
The entire allocated premium can be invested in one fund or a combination of funds as per the customers choice
The entire allocated premium can be invested in one fund or a combination of funds as per the customers choice
Units are purchased using the allocated premiums and the value of the fund grows as per the market performance. Customer can “Switch”
Funds.
Units are purchased using the allocated premiums and the value of the fund grows as per the market performance. Customer can “Switch”
Funds.
In case of death, the sum assured or fund value is paid, whichever is higher.
In case of death, the sum assured or fund value is paid, whichever is higher. On Maturity, the fund value is paid On Maturity, the fund value is paid
Offerings of a Unit Linked Plan
The security of a life insurance cover with the excitement of investment.
Different types of funds to invest in, tailored to meet individuals’ risk appetites.
Liquidity by means of partial withdrawals.
Freedom to invest additional amounts
* Investments are subject to market risk
A fruit vendor has Rs.400/- and goes to buy mangoes
Day1 He invests Rs.100 at Re.1per mango and buys mangoes
Day2 He invest Rs.100 at Re.1.25 per mango and buys 80 mangoes
Day3 He invest Rs.100 at Re.1.75 per mango and buys 57 mangoes
Day4 He invest Rs.100 at Re.2 per mango and buys 50 mangoes
Concept 1: Units
Each Mango is a UnitEach Mango is a Unit
The total Mangoes in his hand as on day 4 is 287
The current market rate per mango is Rs. 2, in this case.
The current value of the stock of mangoes with the Fruit Vendor is Rs. 574.
The total value of the mangoes. In investment terms this is the Fund Value.
The total value of the mangoes. In investment terms this is the Fund Value.
In case of Unit Linked Insurance Plans we invest our money to buy units.
Units are bought at a certain price.
At maturity we get the value of the fund.
Concept 1: Units
NAV is the price of the fund which is used to measure worth of
money invested.
Working is done on the basis of no of units as well as the market
value of the UL fund.
NAV = Net Assets of the fund/ Number of units outstanding.
Returns earned can be calculated using NAV.
Concept 2: Net Asset Value (NAV)
Calculated on a daily basis
Depends on four factors:
- Purchase & sale of investment securities
- Valuation of all investment securities held
- Other assets and liabilities
- Units sold or redeemed
Returns are calculated by measuring change in NAV.
– NAV at the time of purchase and NAV at the time of sale is taken into consideration
– The difference (+/-) is then measured to find out gains / losses.
Concept 2: Net Asset Value (NAV)
Concept 3: Charges
Premium - Charges =
Investible Premium
• Initial Charges • Fund Management Charges • Cost Of Insurance (Mortality
Charges*)• Policy Fee Or Adminstration
Charges
* Includes applicable service tax
Concept 3: Charges
• It is the charge to run the policy.
• Are deducted from the premium to meet costs such as office expenses ,advisor’s commission etc.
Fund Management Charges
FMC is a Charge to manage a said fund.
Expressed in terms of percentage of the fund value.
It is adjusted with your NAV.
Cost of Insurance
The charge to provide you a life insurance cover
Admin Charges
A charge to manage administration of the policy
* Includes applicable service tax
Initial Charges
Concept 4: Switching and Premium redirection
Switching:
– Switching refers to movement of money from one fund to another.
– The switching facility is availed to take advantage of the movements in markets.
– In a premium switch, only the existing value of the fund is transferred and future premiums will still go to the old fund.
Premium redirection:
– Premium Redirection means allocating future premiums to a different fund or set of funds, All future payments would go to the new fund.
Exercise
Investor (A) invests Rs 100 every month for a period of 6 months. The amount invested is used to buy units at the current unit price. The unit price at the beginning of every month is at
– Month 1 = Rs 10 per unit
– Month 2 = Rs 12 per unit
– Month 3 = Rs 14 per unit
– Month 4 = Rs 13 per unit
– Month 5 = Rs 15 per unit
– Month 6 = Rs 16 per unit
Find the number of units allocated every month?
Calculate the total number of unit at the end of 6th month?
Calculate the fund value at the end of the 6th month?
Calculate the profit made by investor A.
Answer to Exercise 1
Months Amount Invested Unit Price Units Purchased
1 100 10 10
2 100 12 8.33
3 100 14 7.14
4 100 13 7.69
5 100 15 6.67
6 100 16 6.25
Total 600 46.08
The fund value at the end of the 6th month= Units purchased X Unit price at the end of the 6th month.= 46.08 X 16= 737.28.The profit = Fund value- total amount invested = 737.28- 600= 137.28
Understanding Mutual Funds
The money is Invested
in the market
The money is Invested
in the market
Returns from the market
Returns from the market
Individual Investors
invest their money into a common pool
Individual Investors
invest their money into a common pool
Returns to individual investors
Returns to individual investors
Understanding Mutual Funds
MUTUAL FUND
By StructureInvestment Objectives
Others
Open Ended
Close Ended
Interval
Equity Debt Balance Cash/ Liquid
Sector Specific Tax Savings
Understanding ULIPs and Mutual Funds
Investment for a longer horizon
Money invested as per IRDA Regulations.
Regulatory requirement to maintain a solvency margin.
Multiple fund options under one single plan.
No redemption pressure – premium lock for 3 years.
Make gains by switching funds (Book profits) without any short term capital gains
Provides Life Cover
Investment is fund specific
Is subject to high redemption Pressure
Depend on Daily fluctuation of the market
Over haul portfolio very often
During a bear market – a 100% Equity Fund cannot mitigate risk
Short term capital gains are taxable.
ULIP PLANS MUTUAL FUNDS