ulip in insurance sector

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ULIP In Insurance Sector

ULIP IN INSURANCE SECTOR

INTRODUCTIONULIPs are hardly glamorous, but they have vitalized the life insurance sector.

These plans give the policyholder the best of worlds high returns and risk cover .

ULIPs essentially wed pure risk term cover plans with mutual fund type investment

vehicle to offer life cover with the possibility of market-linked returns on the

premiums. Since most ULIPs guarantee the capital (premiums paid), they offset the

risk on investments made in equities, retaining the spirit of insurance.

The ULIP premium is split between providing life cover, investing in equity,

and expenses. It means you the best of both worlds returns linked to the stock

market and risk cover. The ULIP can be an instrument that lets you ride the stock

market by proxy in the short-term and retain peace of mind with the life cover.

When you invest in ULIPs, yours premium payments are converted into units

and a net asset value (NAV) is declared. The plans are structured in such a way thatthey can be moulded to fit into financial plan. For instance, the liquidity that these

plan offers enables you to make partial withdrawals. But what about the risk, you may

ask. The tenure of these plans is any-where over 15 years in most cases, which

cushions the effect of any stock market corrections.

But not everyone sees ULIPs as great products. There are legitimate concerns

about whether investors are aware of the investment risks inherent in such plans. Atthe end of the day, ULIPs are like any other financial instrument invest in them

depending on your knowledge of the market and your risk appetite .If your

sufficiently knowledgeable, you ay prefer to make your own investment decisions,

instead of leaving it to ULIP. Or, if you feel that equities are too risky, you may prefer

to stay away from ULIPs and look elsewhere for returns. If, however, youre

comfortable with long lock-ins, have little time to monitor your investments, and are

comfortable with a little extra risk, ULIPs could fit comfortably into your portfolio.

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To describe it loosely, ULIP is a combination of an open-ended tax-saver and an

insurance plan.

ULIP is a unique; multiple benefits plan which combines the basic benefit of

life insurance with good returns, tax benefits and accident insurance cover. The plan

offers tax rebate on the amount invested under Section 88 of the Income Tax Act

1961 within the overall limit of Rs 70,000.

It also offers free accident insurance cover up to Rs 50,000. The investment

objective of the plan is primarily to provide returns through growth in NAV or

through income distribution and reinvestment thereof in further units at NAV.

FEATURES

Traditionally, insurance has been considered an attractive tax-saving

instrument, as well as a risk cover. The returns on investment in insurance products

were attractive mainly because of tax breaks. Now, thanks a diminishing interest rates

and a booming stock market, investors are looking to instruments like ULIPs for good

returns coupled with risk cover. In fact, share of other financial products, as well as

taking on traditional insurance products.

1. A multi-purpose tax saving plan with a choice of 10 years or 15 years

duration. Open to any resident/non-resident Indians between the ages of 12

and 55 years for 10 year plan, and 12 and 50 years for a 15 year plan.

Physically handicapped persons holding gainful employment can join the plan

subject to lapse of five years from the date of event.

2. Sale of units will be at NAV while repurchase at 1.5 per cent discount to NAV

which will be declared daily. The scheme is open for sale and repurchasethroughout the year except during book closure. Repurchase at maturity will

be at NAV prevailing on maturity date.

3. An investor can join for a minimum target amount of Rs 15,000 or up to the

maximum target amount of Rs 2,00,000 for 10-year plan and Rs 1,99,500 for

15 year plan, either through one or more applications. Chosen target amount is

required to be contributed in yearly or half-yearly installments over 10/15

years.

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4. The plan invests primarily to provide returns through growth in the NAV. Out

of the subscription every year, a small amount is paid to LIC towards premium

for life cover and the balance amount is converted into equivalent number of

units at the prevailing rate.

5. Plan provides life insurance cover up to the target amount. For female

applicants without independent income it is restricted to a maximum of Rs

40,000.

6. Free accident insurance cover of Rs 50,000 irrespective of the target amount.

7. There is a guaranteed maturity bonus of five per cent of the target amount for

a 10 year plan and 7.5 per cent for a 15 year plan. A member can continue

beyond the 10/15 year period in which case he is entitled to accident insurance

cover and a post maturity bonus of 0.5 per cent for every completed year

provided he has not withdrawn any amount earlier.

8. No medical examination is required at the time of joining the plan. Investment

can be made in ones spouses or childrens name.

9. Totally exempt from the levy of gift tax and wealth tax.

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W HERE U LIP

D IFFERS4


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ULIP vs. TRADITIONAL PLANS

In traditional insurance products, the premium goes almost entirely into risk

cover; savings is secondary. In ULIPs, on the other hand, the bulk of the premiumgoes towards investment, and a small portion is set aside for premium payments with

ULIPs, which offers a variable sum assured starting with a minimum five times

premium with a minimum three-year lock-in period.

Since ULIPs invest in market-linked financial instruments, returns are high.

Traditional insurance products invest in government securities, corporate bonds and

the money market, and stay away from the equity market. This conservative risk

management philosophy works well when interest rates are high, but with falling

rates, they cannot offer much. Naturally, the equity market-linked returns that ULIPs

offer are far higher. (A note of caution: insurance is not an instrument that provides

only good returns. The points of insurance is to secure your life ensure that your

financial dependants do not suffer heavy monetary losses in case of your demise.)

ULIP vs. MUTUAL FUNDS

If the insurance element is removed, you would think theres little to choose

between ULIPs & mutual fund schemes. But there are several intrinsic differences

between the two products even if the insurance element is not considered.

By their very nature, mutual funds are products where the managing fund

house fixes the investment amount. In the case of ULIPs, the premium contribution is

controlled at your end. Also, mutual fund expenses are prescribed by regulator SEBI

(securities & exchange board of India), unlike ULIPs. The treatment of tax on the

investment amount withdrawal is treated differently for products.

Then, of course, there is the life insurance component, which some mutual

fund are now offering on newly launched funds. However, these products work very

differently and it is here that ULIPs score over mutual funds.

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Prospective investors must, therefore, understand the structure of the ULIP,

the factors that determine how good returns will be and the risks involved, and then

figure out if they have the risk appetite, wheaher they can get better returns elsewhere

and whether their horizon matches the long lock-ins. And they can then decide which

plans offer the best rewards.

ULIPs TRADITIONAL

PLANS

MUTUAL FUNDS

Investment

amount

Depends on your

contribution; can

be varied over the

tenure of the

policy.

Is fixed, depending

on the sum assured

you decide upon

Minimum investment

amounts are determined

and fixed by the fund

houses

Sum assured Minimum five

times the premium

contribution

Minimum is decided

by insurer and

premium is based on

it

No life insurance,

though some funds have

started offering it as a

value-additionExpenses No upper limit;

expenses are

determined by the

insurance company

with IRDA

approval

High agent

commissions. Can be

as high as 35 percent

in the first year

Sebi prescribes the

upper limits. For

instance, equity funds

can charge a maximum

of 2.5 percent P.A.

There are also expenses

linked to entry and/or

exit loadsFlexibility Very high; you

have full control

Low and rigid; you

have no control

High flexibility, but

carries entry/exit costTransparency High Low HighLiquidity High Low High

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Tax benefits Section 80C

benefits are

available on entire

contribution

subject to Rs 1 lakh

ceiling. On

maturity, the

proceeds are tax-

free under section

10(10D)

Section 80C benefits

are available on

entire contribution

subject to Rs 1 lakh

ceiling. On maturity,

the proceeds are tax-

free under section

10(10D)

Section 80C benefits

available only to

investments in tax

saving funds. Tax

treatment of equity

linked and debt oriented

funds is different and

needs to be understood

with short-term and

long-term capital gains

tax as applicable.Portfolio

disclosure

Not mandatory, but

most insurers

disclose on

quarterly basis

No such facility Quarterly disclosures

are mandatory

Assets

allocation

Can switch across

funds with one

switch per year free

of cost

No such feature Relevant entry and exit

loads have to be borne

by the investor

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S ELECTING T HE

R IGHT U LIP

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STEPS TO SELECTING THE RIGHT ULIP

Unit Linked Insurance Plans (ULIPs) were always seen as a 'wonder product'

that simultaneously fulfilled an individual's needs for investment and insurance.

However, the recent downswings in the markets have forced investors to do a

rethink. Very often it was poor selection that was responsible for the investors' woes.

Here is a 5-step strategy for investing in ULIPs.

1. Understand the Concept of ULIPs

Try to do as much homework as possible before investing in an ULIP. Thisway you will know what you are getting into and won't be faced with unpleasant

surprises at a later stage.

Our experience suggests that many a time people do not realise what they are

getting into (in fact we have been approached by several people who wanted to cancel

the ULIPs they had been coerced into taking by unscrupulous agents). Gather

information on ULIPs, the various options available and understand their working.

Read the literature available on ULIPs on the Web sites and brochures

circulated by insurance companies.

2. Focus On Your Requirement And Risk Profile

Identify a plan that is best suited for you (in terms of allocation of money

between equity and debt instruments). Your risk appetite should play an important

role in the plan you choose.

So if you have a high-risk appetite, go in for a more aggressive investment

option and vice-a-versa. Opting for a plan that is lop-sided in favour of equities when

you are a risk-averse individual might spell disaster for you (this is true in most cases

currently).

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3. Compare ULIPs of different insurance companies

Compare products of the leading insurance companies. Enquire about the

premium payments as ULIPs work on minimum premium basis as opposed to sumassured in the case of conventional insurance policies.

Check the fund's performance over the past six months. Find out how the debt

and equity schemes are performing and how steady the performance has been.

Enquire about the charges you will have to pay. In ULIPs the costs involved are a big

deciding factor.

Ask about the top-up facility offered by ULIPs i.e. additional lump sum

investments you can make to increase the savings portion of your policy. The

companies give you the option to increase the premium amounts, thereby providing

you with the opportunity to gainfully utilise surplus funds at your disposal.

Enquire about the number of times you can make free switches (i.e. change the

asset allocation of the money in your ULIP account) from one investment plan to

another. Some insurance companies offer you free switches for a 2-year period while

others do so only for 1 year.

4. Go for an experienced insurance advisor

Select an advisor who is not only professional and informed, but also

independent and unbiased. Also enquire whether he has serviced clients like you.

When your agent recommends a ULIP of X company ask him a few product-

related questions to test him and also ask him why the other products should not be

considered.

Insurance advice at all times must be unbiased and independent and your agent

must be willing to inform you about the pros and cons of buying a particular plan.

His job should not just begin by filling the form and end after he deposits the

cheque and gives you the receipt. He should keep a track of your plan and inform you

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on a regular basis. The key is to go for an advisor who will offer you value-added

products.

5. Does your ULIP offer a minimum guarantee?

In market linked product if your investment's downside can be protected, it

would be a huge advantage. Find out if the ULIP you are considering offers a

minimum guarantee and what costs have to be borne for the same. This will enable

you to make an informed choice.

Today, more individuals are open to using the ULIP-way to create wealth over

the long term. Here we outline exactly how ULIPs can help you fulfill that

responsibility.

If you are between 25 and 35 years of age

You are young, probably married and even have kids. If you are the sole

breadwinner in the family, then you have quite a few responsibilities to fulfill right

from planning for your child's education/marriage to planning for your own retirement

to providing for the family in your absence.

The last responsibility is the most critical and ironically it is the easiest and

cheapest one of the lot to fulfill. At Personalfn, we have always been votaries of term

insurance -- the cheapest way to get a life cover for yourself.

Term insurance is also insurance in its 'purest' form, in other words there is no

savings element in it, which ensures your premiums are very low. There is no better

product to provide for your family in case of an eventuality and all individuals mustconsider taking a term plan.

Term insurance of course takes a huge burden off your chest as also your

wallet. But it still leaves you with a problem. If term insurance is only going to take

care of the 'risk' element, who is going to take care of the 'savings' part.

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This is where ULIPs come in. Of course, that is not to say that ULIPs do not

have an insurance element, they do, but it is limited largely to the earlier years and

after a point they don the mantle of an investment product.

So how can ULIPs help you save for child's education/marriage, planning for

retirement and other investment-related objectives? ULIPs can do all this and more

because they come with a lot of variety.

Consider this; except for term insurance (because it does not make sense), just

about every life insurance product has a ULIP option. So you have endowment ULIP,

child plans ULIPs and pension ULIPs. As a matter of fact, there are some life

insurance companies that only have ULIP products; they don't have traditionalendowment, pension and child plans at all!

What that tells you is that if you are willing to take on some risk, a ULIP can

help you meet a lot of your financial objectives.

If you are looking to set aside some money for your child's education, the 5%-

6% return on an endowment plan may not even take care of inflation, let alone

provide for a medical or MBA degree. The return you earn on a child plan should not just counter inflation; it should be enough to cover the cost of education.

And the way cost of education is spiralling, your insurance plan must work

very hard. Given their equity component, ULIPs are ideally placed to fulfill this role.

As we mentioned before, ULIPs are flexible; there are various options within a

ULIP with the equity component varying right from 0% to 100%. This ensures that

you are able to select an option that best suits your risk profile. Let us understand how

ULIPs can be tailor-made to serve your financial planning needs.

You are in the 25-35 years age bracket. Your most pressing financial

objectives are providing for your child's future and your own retirement. ULIPs can

help you achieve both. Although you can take a single endowment ULIP to achieve

both objectives, we think it is more prudent to make a demarcation between the needs

and take separate ULIPs dedicated to each objective. Opt for a ULIP child plan to

provide for your child's higher education, marriage and seed capital for business to

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name a few needs. One way to handle this multi-faceted objective is to take a ULIP

money-back plan. This way you get monies at regular intervals to address multiple

needs.

The other important plan that individuals must consider taking earlier on their

lives is a pension plan. Building a corpus to face the rigours of retirement should be

given the priority it deserves.

Again, a long-term investment objective like retirement planning could do

with equity 'push'. Here is where a ULIP pension plan can add value to your

retirement portfolio. Likewise a ULIP endowment plan can help you meet investment

objectives like buying property or setting up a business for instance.

If you are between 35 and 45 years of age

By the time you reach the 35-45 age brackets, some of your existing ULIPs

are probably nearing maturity. For instance, if you had taken a ULIP child plan earlier

on, it is likely to mature in this age bracket to coincide with the need (higher

education/marriage) you had in mind at the time of taking the ULIP.

However, if you married late or did not begin planning your finances at anearly stage in your life, now is the time. If you haven't insured yourself as yet, go for a

term insurance plan.

The advantage of taking a term plan at a slightly advanced age is that you have

a better idea of how your lifestyle is likely to pan out going forward. In terms of costs,

term plans remain your cheapest option no matter when you take one.

You can opt for some of the ULIPs we mentioned for individuals in the 25-35

years age bracket depending on your needs. Remember, unlike endowment, which

gets really expensive at an advanced age, ULIPs because of the way they are

structured, do not turn out that expensive.

If you are over 45 years of age

In this age bracket, it is likely that you are insured. However, you still need to

review your insurance cover taking into consideration the changes in your lifestyle,

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income, needs and financial commitments. Beef up your insurance cover through a

term plan.

By this time, your ULIP pension plan will have matured. You can then opt for

an annuity, immediate or deferred, depending on your requirements.

FLEXIBILITY

Traditional insurance products give you little room for maneuvering; its a

one-size-fits-all approach. On other hand, ULIPs allow you to park funds into

different fund options depending on your risk appetite. And if your approach to risk

changes, you have freedom to switch to another fund option that comes with more or

less risk. A good strategy would be at opt for an equity heavy investment fund in your

early years, reducing the equity exposure as you age and shifting to a debt heavy fund

towards retirement.

Another advantage of investing in ULIPs is that they allow you to make

periodic top-ups to your regular premium contribution rather than retain the surplus in

low interest bank accounts. Though there is a cost associated with the top-up, this can

work well if you have high disposable money to invest in these plans. It also lets you

time the market (provided you are well-versed in stock market trends). Even better,

you can skip paying premium occasionally if youre stuck for cash, & plan will adjust

the premium amount from the NAVs to ensure your policy does not lapse & your risk

cover remains intact.

And, of course, theres liquidity. Since ULIPs are NAV based, once the three-

year lock-in period is over, the units can be sold any day. Unlike the money-back typeof endowment plans, where the inflows & outflows year are fixed, ULIPs allow you

to decide when to withdraw the investments made. For instance, in a 20year policy,

you can opt to receive set sums in year 10 & year 17, & allow the rest to accrue in the

fund.

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CLARIFICATION OF ULIPS

6 Points To Note

Since ULIPs offer a lot of flexibility, you need to keep some points in mind to

optimize the benefits associated with them.

ULIP child plans/pension plans and even term insurance for most individuals.

When you opt for these plans it is important you do this after taking your insurance

consultant into confidence. He is the one who is going to help you with the numbers,

so you need to tell him exactly what you are looking for in an insurance plan.

Remember there is an insurance cover associated with ULIPs. Since it is also

likely that you have other insurance plans like term and/or endowment, it is important

you have a clear idea of exactly how much your insurance cover is worth after

considering all your insurance plans. This number will prove helpful when you review

your insurance cover at regular intervals.

Likewise, ULIPs also have an investment element. You are likely to have

investments in mutual funds, stocks, bonds and fixed deposits as well. You need to

add up the market value of all these investments while calculating your investment

worth. This number will prove useful when you wish to beef up your investments in a

particular asset.

ULIPs derive their 'power to perform' from equities. When you have a lot of

aggressive ULIPs in your portfolio it means that you are overweight on equities. Addto this your investments in stocks and equity funds, and your exposure to equities

increases even further. To temper your equity exposure, it is generally advisable to

opt for conservative/balanced ULIPs (maximum 50% equity exposure).

Even if you are a high-risk investor, you must gradually shift your assets to a

conservative ULIP option as your age advances. Financial prudence dictates that risk

reduces as age increases; this needs to reflect in all your investments including ULIPs.

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Like with all investments, it is prudent to diversify your ULIP investments.

This is necessary due to several reasons with financial prudence being the most

important reason. Varying flexibility levels in ULIPs across insurance companies is

another factor that should make you opt for a ULIP from more than one insurance

company. Varying level of expenses in ULIPs is another reason to opt for ULIPs

across insurance companies to keep expenses on the lower side.

What should you do now?

Ensure that the equity component is in line with your risk appetite. If it is not,

make amends now. Do not wait for the markets to correct upwards.

Do not get carried away by fancy projections made by unscrupulous salesagents. Focus on your requirement and risk profile. At any rate give the

aggressive 100% equity plans a miss.

Understand the cost of taking a ULIP. Sometimes a pure life insurance and mutual

fund combination may turn out to be more cost effective.

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A RE U LIPS

S AFE?

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ARE ULIPS SAFE?

The Insurance Regulatory and Development Authority raised concerns over

the way unit linked insurance plans (ULIPs) were being sold.

It was also worried about the disclosure norms (or the lack of it), which were

being followed by life insurance companies.

ULIPs are market-linked insurance plans with a life cover thrown in. But the

said cover is lower than most plain-vanilla plans (like endowment plans) as a sizable

portion of the premium goes towards investments in market-linked instruments like

stocks, corporate bonds and government securities.

The argument that IRDA has put forth is that the primary purpose of insurance

is to provide life cover; returns should play second fiddle to the cover. This makes

sense, but the insurance companies don't seem to think so.

Trends in the life insurance industry have witnessed a sea change in the last

few years. ULIPs have managed to outsell plain vanilla plans by quite a margin.

For some private insurance companies, they account for up to 70% of new

business generated. There's nothing wrong with ULIPs per se, but the question that

has been a cause for worry is -- do investors know the flipside to investing in ULIPs?

It doesn't seem so.

The primary focus of life insurance agents for selling ULIPs has always been

the alluring market returns compared to say, a plain endowment plan. In a rising

market, the returns do look good. But what these agents fail to convey many a times,

is the downside, were the markets to fall.

The agent sometimes handles this fact by telling the individual that he can

'exit' (by surrendering) from a ULIP any time after a minimum of three years and also

benefit from a 'possible' appreciation in stock prices over this period. While this may

be true, what individuals do not realize is, it is a costly affair to exit a ULIP after just

three years due to the high costs charged by ULIPs upfront. ULIPs, due to their verynature, should always be considered with a long-term view.

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The life insurance industry should also be proactive in educating individuals

about life insurance. This is especially so in case of ULIPs where individuals

definitely need to be informed about the risk-return proposition that ULIPs offer.

Although one might argue that the insurance agent is supposed to play that

role, the current state of affairs suggest otherwise. An issue worth contemplating is

the so-called 'financial consultants' who sell, not a basket of financial products but

only life insurance.

How can one be qualified to be a 'financial consultant' without having the right

credentials and with just one product at his disposal? No doubt there is a certification

course that needs to be cleared.

But simply clearing the IRDA exam doesn't make anyone a financial

consultant. Financial planning requires a lot more grey cells and experience.

We, at Personal finance, have come across clients who after buying a ULIP

wound needed it in the first place given that they already have many other market-

linked investments like stocks and mutual funds.

The feeling they take home is that they did not really 'require' a ULIP but were

'sold' one. What they really needed was a simple term insurance policy.

The IRDA was also concerned about the fact that were the markets to fall at

the time of maturity of a ULIP, a sizable amount of the corpus of the individual could

get wiped out.

To address this issue, it plans to come out with certain guidelines, which mightallow investors in ULIPs to stay invested beyond the stipulated maturity date so as to

recoup losses.

All we are saying is that individuals should be wary of the risks associated

with a market-linked product like ULIPs before investing in them. The investment

should be in line with their risk profiles and long-term financial planning objectives.

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ULIPs: Be(A)ware Of The Risk

Unit Linked Insurance Plans (ULIPs) all of sudden became a popular

investment vehicle with investors in the past one year. The reason: perhaps the bull

phase or the lure of market-linked returns those insurance companies have been

advertising. But with the markets now having corrected significantly, many investors

are wondering whether they should have opted for a ULIP in the first place.

A single cornerstone advantage ULIPs offer is that they leave the asset

allocation decision in the hands of investors themselves. You are in control of how

you want to distribute your money across the broad asset classes and how and when

you want to reallocate. You can withdraw from these plans (after the initial lock in period) without any tax implication as withdrawals and death claim proceeds under

ULIPs qualify for (capital gains) tax exemption under Section 10 (10D) of the Income

Tax Act.

But such flexibility can be a big disadvantage if you are not an expert. You

could choose to be more in equities (like you probably did late last year or early this

year), when the time is probably right to go into low risk debt. Or vice versa. The

impact of such incorrect decisions could be significant.

ULIPs: Linking Insurance To Markets

Most insurers in the year 2004 have started offering at least a few unit-linked

plans. Unit-linked life insurance products are those where the benefits are expressed

in terms of number of units and unit price. They can be viewed as a combination of

insurance and mutual funds. The number of units, which the customer would get,

would depend on the unit price when he pays his premium. The daily unit price is

based on the market value of the underlying assets (equities, bonds, government

securities etc.) and computed from the net asset value.

The advantage of Unit linked plans are that they are simple, clear, and easy to

understand. Being transparent the policyholder gets the entire upside on the

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performance of his fund. Besides all the advantages they offer to the customers, unit-

linked plans also lead to an efficient utilisation of capital.

Unit-linked products are exempted from tax and they provide life insurance.

Investors welcome these products as they provide capital appreciation even as the

yields on government securities have fallen below 6 per cent, which has made the

insurers slash payouts.

According to the IRDA, a company offering unit linked plans must give the

investor an option to choose among debt, balanced and equity funds. If you opt for a

unit-linked endowment policy, you can choose to invest your premiums in debt,

balanced or equity plans. If you choose a debt plan, the majority of your premiumswill get invested in debt securities like gilts and bonds. If you choose equity, then a

major portion of your premiums will be invested in the equity market. The plan you

choose would depend on your risk profile and your investment need.

The ideal time to buy a unit-linked plan is when one can expect long-term

growth ahead. This is especially so if one also believes that current market values

(stock valuations) are relatively low. So if you are opting for a plan that invests

primarily in equity, the buzzing market could lead to windfall returns. However,

should the buzz die down, investors could be left stung.

If one invests in a unit-linked pension plan early on, say 25, one can afford to

take the risk associated with equities, at least in the plan's initial stages. However, as

one approaches retirement the quantum of returns should be subordinated to capital

preservation. At this stage, investing in a plan that has an equity tilt may not be a good

idea.

Considering that unit-linked plans are relatively new launches, their short

history does not permit an assessment of how they will perform in different phases of

the stock market. Even if one views insurance as a long-term commitment,

investments based on performance over such a short time span may not be

appropriate.

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TRANSPARENCY

Compared to traditional insurance plans, ULIPs score high when it comes to

informing customers about costs & fund investments.

In traditional plans, charges are invariably not disclosed. But ULIPs disclose

upfront the expenses that go into them. The mortality expense that goes towards

insuring your life is disclosed as you sign the policy, incanting the insurance cost.

You are also informed how much goes as expenses (commission & administrative

charges) & how much of the premium amount is invested.

The ULIP also informs you about the charges involved in switching between

fund options; you get one free switch a year & have to pay for any more. And though

it is not a mandatory requirement, ULIPs make it a point to keep policyholders aware

of the fund portfolio, & sends out statements every quarter. This keeps you informed

about the fund strategy & you can use this information when switching between

funds.

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Add More Zip To Your ULIP!

The past couple of years have seen ULIPs (unit linked insurance plans)

emerge as overwhelming favourites with individuals wanting to buy life cover

complemented by a flavour of equities. The Indian bourses too have played a part in

fuelling the demand for ULIPs. However, there is one important aspect, which we feel

individuals should consider before they commit their money to ULIPs from any life

insurance company.

Simply put, ULIPs are life insurance plans, which can invest a portion of their

corpus in equities. The percentage of investments in equities though differs acrossinsurance companies. While some companies have a mandate to invest upto 100% of

their corpus in the aggressive option, other insurance companies have a cap (like

35% of corpus for instance) on the aggressive option. Given the edge equities can

provide to your portfolio, the percentage of equities in a ULIP can make a significant

impact on the returns over the long term. An illustration will help in understanding

this better.

Let us take an example of an individual wanting to invest a sum of Rs 100 (as

premium) each year in ULIPs. His investment tenure is 30 years. He has two options

to consider- one which offers him a maximum of 35% exposure to equities and the

remaining 65% in debt instruments. The other option offers him 100% exposure to

equities. Let us also assume that he is expecting a 10% growth year-on-year CAGR

(compounded annual growth rate) from the equity component and a 7% growth

CAGR from the debt component.

The individual is assumed to have a high-risk appetite and hence, he decides to

invest his entire corpus in the aggressive option throughout the tenure.

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The Power Of Equities

ULIP from Company

A

ULIP from Company

B

Amount invested(Rs) 100 100

Equity exposure (%) 35 100

Amt receivable on maturity from

equity (Rs)

6,333 18,094

Debt exposure per annum (%) 65 0

Amt receivable on maturity from debt

(Rs)

6,570 0

Total amt. receivable on maturity (Rs) 12,903 18,094

CAGR on equities is assumed to be 10% and on debt to be 7%.

Tenure is 30 years.

As can be seen from the table, if a sum of Rs 35 is invested each year (out of

the Rs 100 paid as premium) in equities for a period of 30 years and the rate of returns

is assumed to be 10% CAGR, then the individual stands to gain Rs 6,333 on maturity.

Also assuming that the remaining Rs 65 is invested in debt instruments for the same

period and this yields 7% CAGR, the maturity amount works out to Rs 6,570. The

total amount that the individual stands to receive on maturity is Rs 12,903.

As opposed to this, if the individual were to invest the entire amount of Rs 100

in equities, other variables remaining the same, the returns amount to Rs 18,094.

Which is approximately 40% higher than the returns that the individual would havereceived had his investments been limited to a 35% equity exposure!

So what does this mean for an individual who wants to invest in ULIPs? To

begin with, several studies have shown that equities tend to outperform other asset

classes like bonds and government securities over the long term. It therefore makes

sense for the risk-taking individual to invest a sizable portion of his corpus in equities.

Therefore it also follows that a maximum 35% equity exposure will not be able to

power the individuals portfolio returns like a 100% equity exposure would, other

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parameters (tenure, expected returns, premium amount) remaining the same. Add to

this the fact that the 100% equity ULIP option also allows the individual to shift his

money to debt in varying proportions (which range from 0%-100%), and one has a

potent combination.

Of course, the return figures will change with a change in the assumptions

considered above. For example, had we assumed a 15% return on equity without

changing the other parameters, then the difference in returns between the 35% equity

option and 100% equity option would be 107%! Conversely, if we compare a 35:65

(equity: debt) portfolio versus a 70:30 (equity: debt) portfolio without changing the

other parameters, then the difference in returns would have been approximately 22%.

Of course, it goes without saying that many factors other than the equity

exposure affect ULIP returns. For example, expenses and the quality of fund

management are two very important factors that need to be evaluated before taking

the plunge into ULIPs. Individuals therefore need to bear in mind that a ULIP needs

to be evaluated on various parameters before zeroing in on a particular life insurance

company.

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ASSEST ALLOCATION

Funds collected under the plan after paying the insurance premium shall

generally be invested in -- not less than 60 per cent in debt instruments with low to

medium risk profile and not more than 40 per cent in equities and equity related

instruments. For e.g.

ASSET MANAGEMENT COMPANY PVT. LTD.SCHEME: UTI Unit Linked Insurance Plan

PROVISIONAL AND UNAUDITED PORTFOLIO DISCLOSURE AS OF 31/03/2006 (Market value in Lacs)NAME OF THE INSTRUMENT QUANTITY MARKET-VALUE %TO NAV INDUSTRY-NAME - DEBEquity and Equity related(a) Listed/awaiting listing on Stock

ExchangesEQ INFOSYS TECHNOLOGIES LTD. 641000 19110.77 4.69 SOFTWAREEQ UTI BANK LTD. 4958342 17654.18 4.33 BanksEQ BHARTI TELE-VENTURES LTD. 3286265 13564.06 3.33 TELECOM-SERVICES

EQ ITC LTD. 5890445 11495.2 2.82 CONSUMER NON DURABLESEQ TATA TEA LTD. 1106095 9588.74 2.35 CONSUMER NON DURABLESEQ RELIANCE ENERGY LTD. 1287769 7877.28 1.93 POWEREQ HINDUSTAN PETROLEUM

CORPORATION LTD. 2430356 7773.49 1.91 PETROLEUM PRODUCTSEQ JET AIRWAYS INDIA LTD 788652 7749.69 1.9 TRANSPORTATIONEQ BHARAT PETROLEUM

CORPORATION LTD. 1765662 7509.36 1.84 PETROLEUM PRODUCTSEQ PUNJAB NATIONAL BANK 1578715 7426.28 1.82 BanksEQ PFIZER LIMITED 596592 6882.58 1.69 PharmaceuticalsEQ UNION BANK OF INDIA 4926910 5991.12 1.47 BanksEQ SKF INDIA LTD. 1792983 5551.08 1.36 INDUSTRIAL PRODUCTSEQ CRISIL LTD 200000 3475.2 0.85 FINANCEEQ EXIDE INDUSTRIES LTD. 626203 1652.86 0.41 AUTO ANCILLARIESEQ STATE BANK OF BIKANER &

JAIPUR 26330 1096.47 0.27 BanksEQ McNALLY BHARAT ENGINEERING

CO.LTD. 505352 705.98 0.17 INDUSTRIAL CAPITAL GOODSEQ TATA COFFEE LTD 122800 448.16 0.11 CONSUMER NON DURABLESEQ MCS LTD. 151956 50.53 0.01 SHARE TRANSFER REGISTRAREQ THE DHAR TEXTILES MILLS LTD 340991 12.99 * TEXTILE PRODUCTSEQ BHARAT SEATS LTD. 600 0.65 * AUTO ANCILLARIESEQ ORIQUA LIMITED 200000 0 * IISL-UNCLASSIFIEDEQ OMEGA LABORATORIES LTD. 100000 0 * IISL-UNCLASSIFIEDEQ MODERN DENIM LTD. 425000 0 * IISL-UNCLASSIFIEDEQ APTE AMALGAMATIONS LTD. 3590 0 * IISL-UNCLASSIFIEDEQ MAHENDRA PETROCHEMICALS

LTD. 400000 0 * IISL-UNCLASSIFIEDEQ DHAR CEMENT LTD. 100000 0 * IISL-UNCLASSIFIEDEQ HITKARI FIBRES LTD. 300000 0 * IISL-UNCLASSIFIED

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I NSURANCE:

G OOD T IMES T O

C ONTINUE

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INSURANCE: GOOD TIMES TO CONTINUE

The life insurance industry has been a dynamic one since the entry of the

private players into the insurance market. Customer focus and product innovationhave taken centre stage, which, one has to say, has been a departure of sorts from the

days gone by. Last year was no different for this sector; it saw a lot of activity in the

year.

Budget changes

The most significant event of the year for the insurance sector was the increase

in tax benefits on life insurance plans.

Earlier, the benefits on premium payments stood at Rs 70,000 for the year;

these were brought within the consolidated Section 80C banner to Rs 100,000. This

limit includes Section 80CCC pension plan tax benefits upto a maximum of Rs

10,000.

ULIPs form a major portion of new business

Unit-linked insurance plans (ULIPs) continued to rule the roost; taking off

from where they had left last year. For many life insurance companies, ULIPs

accounted for more than half of new business.

Mis-selling still continues

ULIPs have been aggressively marketed by life insurance companies. ULIPs

as a product, has been a valuable addition for the insurance seeker. But manyinsurance agents have 'sold' ULIPs without really understanding the individual's

needs, his risk profile or the fundamentals of asset allocation.

At Personalfn, we believe that equities are equipped to do better in the long

run compared to their fixed return counterparts like bonds and G-secs. But at the same

time, we also believe that individuals should make investments in ULIPs in tune with

their risk profile and asset allocation.

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Recently, the Insurance Regulatory and Development Authority has come out

with certain guidelines for ULIPs. It has proposed a compulsory 3-year lock-in period

for ULIPs.

In other words, individuals will not be allowed to withdraw any money from

their ULIP 'account' for the first 3 years. The primary intention behind this is to

preserve the identity of life insurance (and therefore ULIPs) as a long-term savings

option.

The IRDA has also specified that the minimum tenure for ULIP policies be 5

years and that a ULIP have a 'sum assured' and not be totally linked to the markets. In

addition, the IRDA has also proposed that life insurance agents be given separatetraining for selling ULIPs as ULIPs demanded better understanding than that

currently prevalent in the industry.

The guidelines will be effective from June 2006. These guidelines by way of

'restructuring' the product, will help in protecting the interests of individuals and also

go a long way in curbing the malpractices currently prevalent in the life insurance

industry.

Term plans still not being 'sold'

Term plans are the purest form of life insurance available. Despite a term plan

being a must in every individual's portfolio, they continue to remain poor cousins to

savings based plans (life insurance with a maturity benefit).

Blame the many unscrupulous agents for this. Individuals need to ensure that

their financial portfolio consists of a term plan, which will help the overall long-term

financial planning cause.

Endowment plans still being 'bought'

Individuals continue to be 'enticed' by endowment plans for the maturity

benefits and the 'safety' that they provide. While such plans do have an insurance

element, the returns that they offer hardly manage to beat inflation, leave alone help

individuals plan their finances effectively.

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We do believe that from a long-term perspective, individuals need to look at

other more efficient means of savings like tax saving mutual funds or ULIPs.

However, as always, the same should be in line with their asset allocation and risk

appetite.

Pension funds on the anvil?

The interest rate offered on EPF has been brought down from 9.50% to 8.50%.

The EPF being long-term savings, the rate cut has made the need for the setting up of

pension funds even more acute.

While the process of putting up the pension fund regulatory and development

authority (PFRDA) has been initialized, the pace needs to pick up so that individualscan park their pension monies with a body, which will make their money work harder

for them as compared to the earlier scenario.

Strategies for 2006

A term plan is life insurance in its purest form. Individuals should buy a term

plan before considering other types of life insurance. This becomes necessary in light

of the fact that such plans offer the much-needed insurance cover at a low cost.

Come June 2006 and ULIPs will emerge in a more transparent and

unambiguous form due to the changes proposed by the IRDA. Having said that,

insurance seekers on their part need to gain a better understanding of ULIPs and find

out how well it fits into their financial planning exercise.

We could also see more options being introduced in the pension funds

segment. This can give a boost to retirement planning and help individuals plan

effectively for their retirement.

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MAKING ULIPS WORK FOR YOU

Simply putting your money in ULIPs will fetch you decent enough returns and

will, of course, provide life cover. But is that enough? You can get far better investment tool, and it can add much ore value to your portfolio if you take a few

proactive steps. Heres a five-step guide to help you make most of your ULIP.

Financial planning: -

Theres no doubt that ULIPs can help you meet many of your financial

objectives. This is why almost all insurance plans childrens plans, endowment,

money-back and retirement are offered on the ULIP platform, the flexibility of

partial withdrawals, premium holiday and switching between fund options all go

towards helping you achieve your financial goals. Unlike preset money-back dates

that conventional plans offer, ULIPs are structured to let you withdraw when you

need the funds most.

Switching option:-

Most insurers offer one free annual switch across funds. If you time this right,

you can gain a whole lot more than if you switch blindly. A savvy investor will opt

for a higher equity exposure when the markets are performing well and shift to

balance or debt fund when there is a dip in the stock market.

Fund strategy:-

It a well know fact that equities as an asset class outperform all other

investment instruments so in the, early years of your ULIP term preferably stick to

equity-heavy fund options and make the best earnings on it. As your risk appetite

changes with age and you want to move to a lower risk option, you can migrate your

money to safer havens after having made a killing.

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Top-ups:-

Its one of the biggest advantages of ULIPs-the option to top-up your premium

just make sure the top-up falls within sections 80C guidelines in contribution and

section 10(10D) on maturity also, time your top-up; if you top-up from the second

year onwards, the expense ratio is much smaller what this strategy lets you do is to

lower your expense outgo on the early year(when they relatively very high) and lets

you divert more of your over all premium pay outs to the investment component over

the subsequent years.

Tenures:-

The heavy front loading of expenses act acts as a disincentive for early

withdrawals on the fund accumulation. For instance, over three- or five year tenure,

unit linked plan compare poorly with equity funds on pre-tax returns. The maturity

benefits that get you the tax benefits under section 10(10D) work will on polices with

the long tenure. Also, unlike mutual funds, unit-linked plans dont face redemption

pressure; a fund manager for a unit-linked product can, therefore, perform better in

the long run.

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ULIPS: SIMPLIFICATION THE NEED OF THE HOUR?

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ULIPs: Simplification the need of the hour?

A leading Mumbai business daily recently reported that the IRDA (Insurance

Regulatory and Development Authority) plans to standardise life insurance policies.Amongst the various issues that the regulatory authority would like to

tackle/standardise is the product literature and the proposal forms. Given the number

of life insurance companies in the fray and the plethora of insurance plans on offer,

this has come as a welcome move for individuals.

The IRDAs primary aim behind this move is to make life simpler for

individuals interested in buying life insurance. As things stand today, the product

literature for life insurance products differs across companies. This makes it difficult

for individuals to compare insurance plans offered by various companies. It also

queers the pitch for individuals wanting to analyse insurance plans given the fact that

all the insurance companies proclaim their product to be the best offering maximum

value and maximum returns in their category. Often this claim is made on the basis

of partial information. Standardising the product literature for insurance products will

go a long way in helping individuals arrive at an informed decision by being able to

compare products across a standard set of parameters.

That apart, the IRDA has also made it clear that though it cannot stop

insurance agents from mis-selling life insurance, should there be a complaint, it will

hold the insurance company responsible for mis-selling done by its agents. This will

certainly be in the interests of individuals in case of any mis-selling related issues. In

addition, this will also prove to be a deterrent for the insurance company, which will

take extra precaution in educating its agents and the end-users of the product.

However, although the IRDA is doing its bit to simplify insurance products for

individuals, we also feel that it can take up a few other issues as well which are crying

for attention. The first issue concerns ULIPs (unit linked insurance plans) portfolios.

Some life insurance companies do not declare their ULIP portfolios at all i.e. the

portfolios are not available for free viewing. ULIPs primarily function like an

investment with a life cover thrown in. It therefore becomes important that individuals

know where their monies are being invested. For instance, most mutual funds declare

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their portfolio at least once a month. The same is also made available on the company

websites. Though some insurance companies diligently declare their ULIP holdings

on their websites (e.g. ICICI Prudential, HDFC Standard Life, Kotak Mahindra Old

Mutual), many refrain from doing so. The IRDA should look into this matter and

frame suitable guidelines for ULIP portfolio disclosure norms.

Another relevant issue in our view is the simplification/standardisation of

ULIP expenses. As an example, a certain life insurance company incurs 27% as

expenses in each of its first two years of operation, while it falls to 1% after that.

Monthly administration expenses of Rs 15 are incurred in addition to the annual

expenses. Compare this with another life insurance company whose charges are 19%

in the first year, 4% from years 2 to 5, 2% from years 6 to 10 and 1% thereafter.

Monthly administration expenses of Rs 60 are levied in addition to the

abovementioned charges. And the differences continue as we compare expenses

across insurance companies.

What the individual would really be interested in knowing is what are my

ULIP expenses per annum on an average in a particular ULIP policy? While the

expenses may differ across companies, what we are more concerned about is whether

individuals will be able to compare charges across companies. In their current avatar,

it really would need an expert to demystify ULIP expenses from across companies.

The IRDA should look into this matter and simplify things from where they stand

today

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IRDA G UIDELINES

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ULIP, which constitute nearly 90 per cent of new life insurance policies sold

by private insurers, are by nature investment vehicles that come with a small

insurance cover.

A large part of a ULIP `premium' is divided into units and invested in equities

and debt instruments, the mix varying according to each policy-holders' risk appetite.

The units are akin to mutual fund units and the investor can redeem them at maturity

at net asset value. However, since the maturity date is predetermined, ULIP act more

like a closed-ended fund.

Since most of the premium is channeled to investments, the risk to the insurer

is substantially low compared to pure term assurance. Their capital requirement alsocomes down because they need not put up large solvency reserves.

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TAX

BREAKS

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TAX BREAKS

This is one area where traditional plans & ULIPs are on a par with each other.

You get section 80c benefit, subject to maximum limit of Rs 1lakh; regardless of

weather you buy a traditional insurance product or a ULIP. In both cases, the proceeds

on maturity are tax-free under section 10(1od).

Given the way the stock market is booming, its little wonder that policyholders

are flocking to ULIPs. However, remember that the Bull Run may not be sustainable

in the long run. Care must be taken to weigh your risk appetite, investment objectives

& personal financial plan before leaping in to ULIPs.

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CASE STUDIES

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IS UNIT-LINKED LIFE INSURANCE FOR YOU?

Unit-linked life insurance offers the interesting option of combining protection

and tax advantages of life insurance with the attractive prospects of investing in

equities.

A unit-linked plan works on a minimum premium basis and not on a sum

assured one. You decide the amount you can contribute at regular intervals. ULIP

offers you insurance cover till your insurance needs are fulfilled, beyond that it

becomes an investment avenue.

How they compare?

To explain how ULIP works we will compare HDFC ULIP Endowment plan

with HDFC Endowment plan.

Premium

In case of: ULIP, you pay a minimum premium of Rs 10,000 per annum

irrespective of age and term of the policy. Premiums levels can be either reduced or

increased if premiums have been paid regularly for three years and the unit fund value

is at least Rs 15,000. The flexibility of increasing premium contributions in an

existing account helps policyholders manage their cash flows.

In normal/traditional endowment plans the premium is calculated on the basis

of age and the term and the amount you pay, as premium remains the same for the full

term. The minimum premium is Rs 1,500 annually.

Sum assured

The sum assured depends on your age and the cover you take in case of ULIP.

Depending on your age at entry, you may choose between 3 levels of cover - low,

medium or high.

In the traditional plan, the sum assured is calculated by age and term of the

policy to which premium factor is applied.

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Top-ups

Apart from your regular contributions, in case of ULIP, you can also make

additional payments to increase the savings component. These top-ups do not affect

the sum assured. Normal endowment policy does not offer you these benefits.

Investment

You choose the fund where you want to invest your money. HDFC offers a

choice of five funds - liquid, defensive, secure managed, secure defensive and growth.

The Liquid Fund is the least risky with investments in bank deposits and short-term

money market instruments. Growth Fund is the riskiest with an investment of up to

100% in equities. In traditional insurance plans your money is invested keeping in

view the IRDA specification i.e. minimum 85% in debt with the balance in equities.

Charges?

As is the case with unit-linked plans, this plan, too, imposes charges, on both

the funds invested by the policyholder and by cancellation of units. These charges

vary depending on the kind of premium payment option chosen (single or regular).

Other charges include a fund management charge of 0.80% of the fund value

per annum, apart from a flat fee of Rs 15 per month deducted by cancellation of units

In case of ULIP, for the first 2 years the investment content rate is 73% of the

premium and for the remaining years 99%. Risk cover charges (for death sum

assured, critical illness, and accidental death) are charged for cancelling units on each

monthly charge date, based on the person's age at that time.

In traditional plans, the charges are not disclosed. There is an annual fee of Rs

150 for regular premium policies and Rs 300 for single premium ones.

Returns

In case of ULIP, in an eventuality you receive the sum assured or fund value

whichever is higher and on maturity the fund value. In normal endowment plan, ineither case you receive the same benefit i.e. the sum assured and vested bonus.

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In case you stop paying premiums?

If this is in the first 3 years then in case of ULIP, on cancellation of the policy

before paying regular premium for 3 years, there is a charge of 25% of the

outstanding premiums due during this 3-year period. In case of normal endowment

the policy lapses and nothing is paid back

If you stop paying premiums after 3 years, in ULIP you have the option to

make policy paid up, provided the policy has accumulated sufficient policy value. At

present this amount is Rs 15,000. If the fund value of a paid up policy falls below Rs

15,000 then the policy is cancelled and the fund value is returned to you. The risk

cover continues for the sum assured even though the policy has reached the paid upstatus. In traditional plan the policy becomes a paid up policy.

Medicals

In both the plans the norms for medicals are similar i.e. medicals are

compulsory.

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ICICI PRUDENTIAL LIFE INSURANCE LAUNCHES PRODUCT

STRUCTURED ALONG NEW ULIP GUIDELINES

ICICI Prudential Life Insurance Company, Indias No. 1 private life insurance

company, has become the first life insurer in India to introduce a single premium

product LifeLink Super - which is structured along the new ULIP guidelines that

were issued by IRDA in December 2005.

LifeLink Super will open with a New Fund Series that allocates units to

customers at an NAV of Rs 10 per unit on the opening day - March 13, 2006.

The new ULIP guidelines have created a level field for the structure of single

premium products. With LifeLink Super, the company believes that they have a

product that can compete with the single premium products available in the market,

without diluting the concept of life insurance as a long-term instrument for protection

and wealth creation.

The new product -LifeLink Super has a minimum term of 5 years. The product

has embedded options to choose between 2 levels of Sum Assured (125% or 500%).

For e.g, if an individual chooses to pay Rs. 50,000, his sum assured will be either Rs.

62,500 (125%) or Rs. 2,50,000 (500%).

There are four fund options- equity, balanced, debt, and money markets &

cash and the policy holder can shift between funds, four times a year for free.

LifeLink Super is targeted at individuals who want to invest a lumpsum and

earn returns over the long-term, without the pressure of regular future payouts, and is

likely to find great appeal amongst sportsmen, artists, freelancers, and those who want

to invest windfall profits and bonus.

It can be purchased by anyone between the ages of 0-65 years. Those aged 44

years or less pay a single premium of atleast Rs 25,000 and those 45 years and above

pay a single premium of atleast Rs 50,000.

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TATA AIG LIFE INSURANCE LAUNCHES ULIP SUPERANNUATION

Tata AIG Life Insurance Company Ltd launched its unit-linked insurance

plans (ULIP) for superannuation and gratuity schemes in the city, making it the first private life insurance entity offering both traditional and ULIP products in the

country.

Tata AIG Life has entered into agreements with Franklin Templeton

Investments (India) for their non-discretionary investment advisory services and AIG

Global Investment Group for their investment advisory services, the company said in

a release on Monday.

The ULIP superannuation scheme provides individual members the flexibility

to decide on the allocation of their money based on their risk appetite. In case of the

ULIP gratuity scheme, the employer or trustee has the flexibility to decide the ratio of

investment.

Tata AIG Life managing director Ian J Watts said: "we are delighted to

announce that corporates and institutions can now benefit from our ULIP as they can

invest for their superannuation and gratuity schemes. We are encouraged by our early

success, with millions being invested in this business by some of the big names in the

corporate world."

Earlier this month, Tata AIG Life Insurance Company had launched its ULIP -

`Invest Assure' - a unit linked insurance plan for individuals.

Tata AIG Life is extending three of its ULIP - equity, income and liquid fundsto corporates and institutions for investments of superannuation and gratuity schemes.

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UTI TO RELAUNCH ULIP IN SEPT 06

THE second largest mutual fund scheme from the Unit Trust of India (UTI)

would be relaunched in September. Unit-Linked Insurance Plan-1971 (ULIP) with

investors' assets in excess of Rs. 5,400 crores and over 17 lakh investors would be

relaunched with revised features conforming to SEBI regulations.

The revised offer document has been approved by SEBI and the scheme would

be branded as ULIP instead of ULIP-71.

With this, UTI would have brought all of its about 70 schemes, except Unit

Scheme-1964 (US-64), CRTS and CCCF, under the Securities and Exchange Board

of India mutual funds regulations.

In the new format, ULIP would move from the administered pricing

mechanism to net asset value (NAV)-based pricing, the UTI Executive Director, Mr.

B.G. Daga, told Business Line. Earlier, the sale and repurchase prices were fixed on a

monthly basis by the UTI management considering the income accruals and dividend

yields. The open-ended scheme would now declare weekly NAV-based sale andrepurchase price.

Another significant change in the scheme's structure is in relation to the

personal accident cover which has been increased to Rs. 50,000 from Rs. 30,000.

Further, additional post-maturity bonus at the rate of 0.5 per cent per annum

would be paid to those investors who continue in the scheme after the completion of

the 10 or 15 year-plan depending upon the individual option. During such extended periods, investors would continue to have personal accident cover.

With the change-over to NAV-driven pricing and increase in personal accident

cover, ULIP would now be open to non-resident Indians (NRIs) as well. UTI has been

able to get the clearance from Life Insurance Corporation of India to extend the

scheme to NRIs, Mr. Daga said. Earlier, ULIP was not open for subscription by NRIs.

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All the basic features such as target amount and tax concessions would remain

with changes in certain operational aspects after the scheme becomes SEBI-

compliant.

The SEBI regulations prohibit investments in certain instruments such as term

deposits. ``UTI has already started implementing the changes as fresh investments

under the scheme are made keeping in view the SEBI regulations,'' Mr. Daga said.

ULIP, CRTS and CCCF and US-64, which were launched before SEBI came

into being and its mutual funds regulations were framed, are being converted to bring

them in conformity to the SEBI regulations.

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LIC SELLS MORE TRADITIONAL POLICIES THAN ULIPS

Saturday, 15 April , 2006, 08:16

Mumbai: The share of unit-linked products in Life Insurance Corporation's new

business portfolio has shrunk in the last fiscal. The ratio of unit-linked and traditional

plans has changed to 42:58 in 2005-06 from 65:35 in the previous year. This would

mean that LIC has sold more of conventional policies than ULIPs in 2005-06.

While the unit-linked products' first premium income was Rs 7,631.7 crore,

the conventional products raked in Rs 10,453.7 crore. A.K. Shukla, Chairman, LIC,

said that the Corporation's focus was on providing traditional insurance cover, to

which 90 per cent of its agents are dedicated. The Corporation's golden jubilee

product - Bima Gold, a money-back plan with a lower sum-assured, contributed to 31

per cent of new policies, and also helped in increasing the ratio of traditional products.

Equity investments

LIC made a gross investment of Rs 14,867 crore in the equity market, up from

the previous year's Rs 10,000 crore. Investment in the debt market was around Rs

45,000 crore. LIC had invested Rs 12,000 crore in infrastructure in the last fiscal. "In

the current fiscal, we hope to make long-term investments in five mega power

projects," he said. For fiscal 2005-06, LIC's first premium income grew 48.6 per cent,

to Rs 18,085 crore, up from Rs 12,174 crore in 2004-05.

Record sale

It sold 3.15 crore policies in 2005-06, making for an all-time high growth of

31.7 per cent in new policies. 1.7 crore polices were sold in March alone, LIC's

pension and group schemes contributed Rs 3,911 crore, a growth of 7 per cent in

terms of premium - despite FBT on superannuation. Alternative channels, including

bancassurance, brought in premium of Rs 352 crore.

New products

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LIC plans four or five new products in the current fiscal, and 50-60 more

satellite offices this fiscal, in addition to the existing 25.

ulip in insurance sector

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