ULIP - Do you Insure or Invest? head-to-head with ELSS

Due to zooming market all equity related investments look more appealing these days. Even insurance industry caught up with this fancy fever in name of ULIP (Unit Linked Insurance Plan). These kind of insurance products attract people with the terms like Investment, stock market boom. When we approach an insurance company should we really look for an investment product? It is agreed that ULIP blends the insurance with investment. But does this blending give advantage to ones insurance/investment thirst? We needs to crunch some fact before deciding whether ULIP is really a genuine mix of insurance and investment.

ADV - ULIP

There are lot of argument between ULIP and ELSS(Equity Linked Savings Scheme) buddies to claim their product is the better one.

ULIP has edge over ELSS if you consider the following reason,

* ULIP adds the insurance flavor to the product nature. {we have to see this is really an advantage :) }
* ULIP schemes offer three or four type of funds varying on risk appetide. Also gives the option of switching between these funds. Not to forget, atleast 2 switching/year attract no switching change.
* Everyone knows ULIP comes with three year lock-in period. But intersting catch is we dont need to wait for another 3 years for the premium paid on second and third year. Full amount can be withdrawn at the end of third year. Whereas in ELSS, each year payments will attract three year lock individually.

Deuce

If you look at the goal achieved, I dont believe ULIP satisfy ones need towards insurance and investment motive. For example if ULIP product offers 10 times the premium amount as sum assured, during unfortunate event one can claim either of sum assured, total unit value (which ever is higher). So when the product reaches maturity and total unit value is higher, one would loss the full amount paid towards the insurance cover. So it is strongly felt that we are losing money at one side which would have claimed if we invested on pure insurance or pure equity product.

** Product like Future plus gives sum assured plus total unit value towards death benefit. But always watch out the charges (discussed below).

ADV - ELSS

Good portion of money paid towards ULIP goes to many different charges. Here is the list of charges popularly available with ULIP,
~ allocation charge
~ Risk cover charge (Insurance + Accident benifit)
~ Policy admin charge
~ Fund management charge
~ switching charge
~ Surender charge (before lock in period)
~ Service tax charge
~ Miscellaneous chare (premium term, mode change)

Albeit all these charges (except insurance specific charges) are available in ELSS also, % of these charges vary drastically between these schemes. If you look at the first year allocation charge, 16 (like future plus) - 35 (like Invest Shield Life) % of premium goes to allocation charge in ULIP whereas 1.5 - 2.5% goes to allocation charge in ELSS. So the worst day of our invested fund in ULIP is the day we get the allocation(imagine 35% lost in value on day 1). Gaining 35% in a balanced, diversified fund (like Invest shield life) is not an easy job. Due to this margin effect, one can see many people are selling ULIP (now almost each family got an insurance agent) and only financial institutes are selling ELSS.

Instead of ULIP, if one try Term insurance policy + ELSS, he/she can get all the benefits except the switching option. To be frank, I am not a great fan of this switch option. REASON - Surely we cannot time the market and by the time we realize market slumps and thinking of switching, we would have lost considerable percent in NAV. so switching to balanced fund type after value reduction may not be a good idea instead of trying to average the NAV.

GAME POINT - ?

I would suggest ULIP to risk-averse people who want to have exposure to equity along with the risk cover. Two things one should keep in mind while putting money in ULIP,
* Allow the fund to work for longer time. Fund charges would have eaten a big chunk of money in the first three years; unfortunately three years is the lock-in period. So technically, after three years only our fund will work towards growth.
* Go for balanced fund from the first premium payment itself. I dont think switching in between after market slump is a wise man decision.

Others, go play ELSS + Term policy. Allow both work towards their respective goals separately.

I proposed Mohan Das Pai's Salary....

Do you believe I was the reason behind passing Mohan Das Pai's (Infy's Vice President) new salary resolution? :)

Yah. Today I attended Infosys AGM. I had desire to attend AGM of any company and see what is happening inside. Being a tiny investor in Infosys I got a chance today.

As usual, brand Infosys and NRN (NR Narayana Murthy, Chairman and Chief Mentor) were highlighted in each and every move. Its really nice experience to see NRN, the Icon of Indian software industry, in action. He was polite in words, generous in appreciation and very much time conscious.

This year annual report looks attractive. Photos, Graphs in the report surely takes the attention. AGM started with the presentations from few vice-presidents. Presentation by CFO was colorful and musical. Followed by queries from shareholders. It was interesting to see people asking questions regarding some ratios which I never heard. Some resolutions were passed to re-appoint the independent directors and approve the salaries for vice-presidents. Notable one among the re-appointed directors is Dr. Omkar Gowsami, an economist. He is also director in boards of DRL, SRF, Sona Koaya and few more.

Infosys arranged on demand pickup and drop for disabled people and transltor for hearing impaired people. Its really nice gesture.

As usual, meeting was professionaly organized. Refreshment was Okey, not so great. :)

Outside the off-stump...

In test match, outside the off-stump ball is a tricky one. Its bowled more for strategic reason. When the ball keeps low or too much out side the off stump then it could be the scoring opportunity for the batsmen. Leaving the outside off stump ball is the safe strategy. Playing the ball in half-mind is the risky one; that too negotiating the rising delivery would be the definite problem for the batsmen.

So whats the business with cricket and outside the off-stump ball?

We can draw the similarity between offside off-stump and volatile market. Approach towards the volatile market movement (like the one we had in the past three week) should be more strategic. Large cap stocks are/were available at mouth-watering price levels. This is kind of picking up the 'well outside the off-stump ball'. Gains could be maximum if large caps are picked at these level. We never know we will get the stocks like RIL, Suzlon, Rel. Commn, NTPC at the price it was available two days back.

At this point touching mid n small cap stocks is like trying to play the rising delivery. More risky and too much observation is needed.

Too much worrying about the volatility? Best strategy is Wait and watch. Nothing wrong in leaving the delivery.

Where is my money gone...?

My mom usually asks me about my savings, when I say the amount i have in my savings and investments she always wonders what this guy is doing with the money. I have been earning for past 3.5 years and if i look at the amount i have saved and invested, even i wonder where is my hard(!) earned money gone. I usually think myself as a guy with the controlled spending habit. Being not used to cigar, liquor, costly GFs, I thought i ought be saving good portion of my salary.

Last week Sai introduced me a finance consultant. He did a quick analysis on my monthly savings and expenditures (Cashflow analysis) - they call this process as 'Financial Health Check up' in a fancy way. So I had a financial check up for 15 mins. I then realized things that I haven't even thought as a monthly expenditure.

He basically converted all the savings, liabilities(even if you pay yearly once) into monthly saving and expenditure. I noticed half of my monthly salary is going into meeting personal expenditure and paying bills. Then I realized no wonder in having my purse very less bulgier. The point I amazed I didn't even write down the money going out of my pocket. Also realized with the kind of flow I am going, surely I will not attain the short term and long term goals I want achieve.

I generally disapprove owning the credit card; I make out a point "spend within your limit" whenever there comes the question of buying a credit card. After having the financial check up, I realized the options like free credit card and balance transfers which come with 6 month interest free are good to use and play around in generating the additional cash flow.

Financial service companies are helping people in managing the lifestyle and meeting the ST/LT financial goals with right advice on spending, investment and insurance. They basically maintain all our bills with them. You dont need worry about due date, they will call you in advance and remind you to pay the bills. Some service companies are paying the bills behalf of you and collect the money later. When we go with these companies, we need to break the financial myths rather outdated financial myths. In a week or two I will be meeting up the guys in a finance service company. I will add more here if I find interesting things..

It's time to think and move on...

Ooops.... 800+ pts fall for the sensex; nearly 7% correction. Much needed correction - this is what the experts feel.

In any world, consolidation is the much more needed thing to move to next phase of growth. So what was happened today is mere consolidation movement in the stock market. This is the phase where overrated stocks come to the correct value level.

So what does it mean to the investor? Is this the stop call for the people started investing in equity?

First we need to take the lession from the market. If market consolidates and we are running out of the market then there is not point in investing and staying ahead in the maket. If we dont accept the change in the world (market) obviously we are out of the world (Market). So when the market consolidates we need to consolidate our portfolio. How to do this?

* If the fundamentally weak and speculative stocks were bought, get rid of those stocks with right stop loss level. (Probably, I will make the initiative of posting the stop loss level of the stocks i come across; It will be helpful for us for future reference - One more lession :))
* Buy the (new) right stocks at these lower rather correct level.
* If long term stocks were bought at relatively higher levels, rupee cost averaging (RCA) can be done by buying at this level.
* If the companies future guidance are good, these companies can be accumulated at these levels even if the positions already taken on these companies at lower level.

Like market consolidation takes the market to another level, portfolio consolidation will help in creating wealth over the long run.

A mystery called Market...

A mystery called Market...

Indian market index breached all the levels in the recent time. 50% - 100% gain over 2-3 month in the stocks have been very normal news. When I started inveting in stocks two years back, IT stocks rallied like anything. Then service industries had good run up. Power sector picked up next, later commodity stocks picked up thanks to the lined up news of Gold, Zinc, Copper, Alum. touching new highs, increasing demand of Sugar gloabally and Kenyan drought.

But at any point of time, there is no end to the madness of people. We witnessed mad rush to the stocks over the past 2 years whenever there are news related to any industry. People bought as if there were no tomorrow. Same madness continued in the last 1.5 week also; but rush is at the selling counter.

In the last 2 years, i have seen two big corrections to the market. First, when the BJP govt. thrown out of power and second, this week in the backdrop of LME(London Metal Exchange) price fall. During the first fall i didn't feel the effect since i had no great position in the market. This time i could realize the rush and effect. I had positions in two stocks which were speculative buy. One got sold when the SL price is triggered. Another one holds on. All other stocks were value buy. I added more of the value stocks to average out.

In the mid of the day, i just called a friend in a broking firm. We talked about the correction and their broking firm view. He told another big borking firm predicts postive direction of SENSEX after 2 o clock. I didn't pay much attention to this prediction. Surprisingly market turned +ve after 2 o clock.

WheneverI came across this kind of prediction and happening, my belief of retail investors are the prey to FII (foreign Institutaional Investors) and HNI(High Networth Individual) is getting stronger . There are lot manipulation happening behind the screen. People seemed benefit right after the news like commodities touching new high, cement price are roofing and surging of global sugar demand. People, including me, invested on the wave of momentum seemed like intelligent investors. These biggies smartly offload chunk of thier positions at the peak price. When the news is negative, thru' media and broking firms, news spread in a matter of seconds, panic button pressed, ending up most of the stocks locked in the lower circuit. After few days of LC, people will get time to sell their stock after most their profit or capital got eroded. These big guys wait for cheaper price and getting back to their position on the stock.

So what would be the solution/safe guard to this problem?

The good, old idea of being less greedy. One more suggestion we can add, in Rakesh Jhunjunwala term, is Long Term Greedy. So applying less greedy to the trading and speculative stocks and Long term greedy for the value stock will save the investors from losing their shirt in the volatile market.