Investment in Unit Linked Insurance Plans in India

Investment in Unit Linked Insurance Plans in India
INSURANCE PRODUCTS WITH INVESTMENT OPTIONS IN INDIA
About Insurance Products: Insurance Products may be mainly classified as
(I) Traditional Products: These are just like fixed Insurance & Income products, I.e., whatever you need
to invest and the returns you would receive are predetermined / fixed. At maturity (end of the policy
period) you will receive the specified maturity amount. In case of any unfortunate happening during the
period of the Policy, your family (nominated person/s) will receive the 'Sum Assured' (Insured Amount),
and the policy will be terminated.
These products invest into very low risk investments throughout their term (They should do so and have
to confirm the Govt. and Insurance Regulatory and Development Authority rules). The point here is
these products are sufficient only for the predefined Insurance needs range only. The returns on these
products cannot meet the future requirements of the returns to meet the inflation.
(ii) Unit Linked Products: These products are just like mutual funds and carry investments into a broad
spectrum of investments ranging from 'High' to 'Medium' to 'Low' risks (Funds). These Funds are
managed by high profile, expert organisations called 'Fund Managers'.
The investments made into these products are invested as to meet your Insurance and a major portion
is invested for your Investment needs. Of course, obviously there will be some charges for fund
allocation and fund management which are quite negligible when compared to the returns and mainly
the insurance cover.
WHY EITHER MUTUAL FUNDS OR UNIT LINKED INSURANCE PLANS?: The answer lies in the financial view
of 'RETURNS FROM INVESTMENTS'. The only investments whose returns get along proportionately
enough with the ever growing inflation rate are Real Property and then it's 'EQUITY'.
Yes, you can invest in real property. But, then the investment risk needs to be diversified, I.e., investing
in various assets and they also need to respond to your various types of needs currently and in the
future.
WHY 'UNIT LINKED INSURANCE PLANS'? WHY NOT MUTUAL FUNDS?: Certainly one should invest into
mutual funds as they help to diversify the investment risk. Currently in India they are very interesting as
Govt. has restricted the levy of entry fees.

But, then Mutual Funds cannot cater for the (I) Insurance needs. (ii) The Mutual Funds can be liquidated
whenever the customer thinks the returns look enough (except those Mutual Funds with a Lock In
period of 3 to 5 years and have an IT exemption. But, then 5 years is not a much longer period.) and thus
reducing the capital base in an irregular form of risk. The point here is even though the Mutual Funds
give very good returns in a long term, the investments have to be made (by the Fund Manager) keeping
in the view the liquidity required for a shorter period.
Ulip policy addresses both the Insurance and Investment needs efficiently. Currently, in India, once you
take a policy, you can surrender or liquidate or partially withdraw only after the completion of 5 years.
They provide insurance and invest into Mutual Funds for considerably larger periods and hence have
unbeatable larger capitals in the market. The large capital enables highly efficient and highly qualified
Fund management due to negligible transaction costs as compared to the capital.
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