Why AVOID ULIPs and Invest in Mutual Funds ?
Wednesday, July 01, 2009
I thought of sharing this article which is nothing but my own independent study [papers, photocopies from magazines etc] on ULIPs and why I gave a slip to them.I have a simple rule of not to mix investment with life risk coverage. It is easy to get lost that ULIPs have triple advantage of Life Cover + Critical Illness Cover + Benefit of Aggressive returns offered by the Equity Markets. Lets analyze each of these.
Life Cover: Sure they do cover it. However, if you are employed, most employee insurance should cover this risk. Fine, assume they don't, then you can go ahead and purchase "Term Life Insurance" which costs way too less and is also eligible for Tax benefits on the premium you pay.
Aggressive Returns: Assuming you opted for 100% equity in your ULIP, then here is what data suggests on the returns delivered by ULIPs [For comparison sake, we have been recommending HDFC Funds in Mutual Funds, so lets take ULIPs from HDFC itself] HDFC Life - Equity Managed [ULIP] has given returns of just 12.5% in the past 3 years while HDFC Top-200 has managed to yield 19.5%.
Things not in favor of ULIPS are:
- 90% of the agents I have spoken to just mis-canvas the product as they want to sell. ULIP expense charges are as high as 28% in the first 2 years [Agents make the most money here]
- In case of ULIP, you do not have the option for changing the fund - from HDFC Top 200 to say HDFC Growth Fund etc, if the fund manager you have opted for under performs
- Illness benefits come with lot of caveats and fine prints and coverage doesn't begin immediately.
- Companies don't disclose Portfolio of Investments regularly [Once in 3 to 4 Months]
- You can't average daily or weekly to take advantages of spikes in market
- IRDA is the regulator for ULIPs and doesn't come under the purview of SEBI and hence all this stupid practice of CASH deposits being accepted towards premium payments. [We are honest tax payers and good citizens, hence we don't like this]
Now addressing the Critical Illness Benefit - it is like a lottery, that if you were to have a heart attack after 3 years of subscribing to ULIP then you beat our Investment strategy of "Term Life Cover + Mutual Fund" because you get lumpsum paid by the insurance company. This is the only benefit I see from ULIP, but who would ever want to have a stroke or an attack ;-)
Published by DalalStreet Business @ 3:57 AM
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UBI plans to enter MF business
Friday, June 19, 2009
State-run Union Bank of India (UBI) is likely to make an entry into mutual fund business by the end of this calendar year. The bank has already secured the Reserve Bank of India's (RBI) nod for the same and has applied to market regulator Securities and Exchange Board of India (SEBI) for the same, which is expected in next two months.
Meanwhile, the bank has launched its mobile banking facility ‘UMOBILE’ through which its customers will be able to make payments for movie tickets, bills, fund transfer, etc.
The public sector lender is looking to increase its branch count to over 3,000 from current 2,600 by opening 500 new branches.
Apart from this, UBI has also raised Rs 200 crore worth of additional capital on Monday by issuing subordinated perpetual bonds.
Published by DalalStreet Business @ 10:07 AM
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Mutual funds oppose 10% single stock cap rule
Monday, June 01, 2009
Mutual fund houses are demanding the removal of 10% cap on investment of equity schemes funds in a single stock or any other equity related instruments.
Some of the fund houses have requested Securities and Exchange Board of India (SEBI) to modify the said rule. The move comes on account of hindrance of the rule from going forward on higher investment in Reliance Industries shares in the current rally.
The weightage of the Reliance Industries in the S&P Nifty has gone up by 2% in the current year. The stock has almost doubled since March 2009 against the Nifty gaining just over 70%.
Some of the fund managers said that their funds have underperformed Nifty by around 1-2% due to increased weightage of Reliance Industries and the further growth in the company’s business may result in another rise in its weightage in the index.
Meanwhile, index funds and sectoral funds are not required to follow the 10% cap rule, as they mainly invest in those stocks which represent the index or a particular sector.
Published by DalalStreet Business @ 12:30 PM
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ICICI Prudential Target Returns Fund
Monday, May 11, 2009
ICICI Prudential Target Returns Fund is an open ended diversified equity fund that seeks to generate capital appreciation by investing in equity or equity related securities of large market capitalization companies constituting the BSE 100 index and providing investors with options to withdraw their investment automatically based on triggers for pre-set levels of return as and when they are achieved.
The Fund aims to generate capital appreciation by investing in equity and equity related securities of companies that form part of the constituents of the BSE 100 index and intends to in companies that have a large market capitalization and are relatively liquid and widely held in terms of investor base. The fund manager's core philosophy for stock selection would be to assess how much a company is worth, that is, its intrinsic value. The fund will invest mainly in well established companies and the manager seeks to avoid small or even mid sized, unproven or speculative stocks.
Investors can choose from a range of triggers i.e 12%, 20%, 50%, 100% of appreciation. Instead of floating altogether a new fund [becomes difficult for us to recommend as there is no 5 year track record] to provide "Trigger Option" to investors, ICICI could have introduced the option on existing equity schemes of its AMC, since only 2 or 3 of ICICI AMC funds are performing well.
Published by DalalStreet Business @ 12:09 PM
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SBI - Micro SIP under Blue Chip Fund
Tuesday, April 14, 2009
SBI Mutual Fund has introduced Micro Systematic Investment Plan (Micro SIP) under SBI Blue Chip Fund. The change will come into effect from April 15, 2009.
The minimum investment amount under this scheme will be Rs 100 and in multiples of Rs 50 thereafter. The minimum redemption amount will be Rs 500. The minimum tenure of scheme is 5 years.
No entry load would be charged for direct applicants and for rest an entry load of 2.25% will be charged. An exit load of 3% on applicable NAV will be charged if investors redeem from the scheme within 2 years.
An exit load of 2% on applicable NAV will be charged, if the investment is redeemed after 2 years but before 5 years.
The investment objective of this open ended equity scheme is to generate long term capital appreciation by investing in equity and equity-related instruments.
Published by DalalStreet Business @ 12:26 PM
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ICICI Prudential Target Returns Fund
Wednesday, April 01, 2009
ICICI Mutual Fund announced launch of ICICI Prudential Target Returns Fund - an open ended diversified equity fund scheme. The new fund offer (NFO) is open for subscription from April 15, 2009 to May 14, 2009.
This fund offers two plans namely regular and institutional. Under Retail Option, it will have sub options such as growth and dividend and dividend will further have sub options namely dividend payout and dividend reinvestment. Similarly under Institutional option I, one will have only growth sub-option.
The scheme is benchmarked against BSE 100 Index. The investment objective of the scheme seeks to generate capital appreciation by investing in equity or equity related securities of large market capitalization companies and providing investors with options to withdraw their investment automatically based on triggers for preset levels of return as and when they are achieved.
The New Fund Offer (NFO) price for the fund is Rs 10 per unit. The minimum application amount for retail option is Rs.5000 and Rs.1000 for additional subscription amount.Under Institutional Option I the minimum application amount is Rs. 100,000 and Rs.1,000 for additional subscription amount.
Published by DalalStreet Business @ 5:29 PM
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SBI floats Gold Exchange Traded Scheme
Tuesday, March 31, 2009
SBI Mutual Fund has announced the launch of SBI Gold Exchange Traded Scheme.
The new fund offer (NFO) has opened on March 30, 2009 and is scheduled to close on April 28, 2009.
The scheme offers only growth option. As a result, no dividend would be declared under the scheme. Minimum Amount for Application in the NFO is Rs 5000 and in multiples of Re 1 thereafter for Authorized Participants and Investors.
The price of the gold is the benchmark for the scheme. The price here refers to, the morning fixing (AM) of Gold by London Bullion Market association (LBMA).
The investment objective of the fund is to seek to provide returns that closely correspond to returns provided by price of gold through investment in physical gold. However, the performance of the scheme may differ from that of the underlying asset due to tracking error.
Published by DalalStreet Business @ 5:54 PM
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Equity Outlook by HDFC AMC
Tuesday, March 24, 2009
Here is the outlook for Equity by HDFC's CIO and Sr. Fund Manager Mr. Jain.
Current valuations are cheap even assuming NIL earnings growth in FY10. Sensex FY09e EPS-Rs.876, FY10e EPS-885. Equities on current yield are cheaper than bonds - Equities yield: 10.0%, Bond Yield: 6.5%. This points to extreme pessimism and significant under valuation.
Fall in oil price has reduced risks for India and has improved longer term economic outlook. Over next 3 years, potentially, HDFC AMC expects approximately 30% earnings growth (assuming nil growth in FY10 and 15% CAGR thereafter) which will lead to approximately 50-80% P/E expansion.
How Small Investors Lose Money ?
According to AMFI data, Equity Investments in Mutual Funds FY 2008 at the Peak was INR +49,360 cr. Between October - January 2009 Bottoming INR -1,072 cr. So they have invested at the Peak and Exited at the Bottom :-)
Isn't it easy to say BUY Cheap and SELL HIGH ? Then why aren't you guys BUYING cheap now ? At least small amounts of SIP.
Published by DalalStreet Business @ 11:45 AM
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