Insurance ulip

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


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


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






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

Insurance ulip

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