Let me explain all hidden conditions and concepts of Highest NAV Concepts with implication on your investment.
No multiple fund selection option
Generally, ULIP policies come with multiple fund options ranging from pure equity fund, pure debt fund and balanced fund etc. But, the guarantee highest NAV policy offers only 1 or maximum 2 funds and these funds are also more than 95% debt oriented. The debt fund give guarantee and stable return around 7%-8% like bank deposits.
No pure equity fund option –Biggest hidden condition
No guarantee highest NAV policy offer fund with minimum equity exposure to 100% through they mention maximum equity exposure to 100%.This means they have full freedom to invest money 100% in only debt fund. So, you will not get benefits of equity market which gives pretty good returns in long term. This is an excellent marketing tactics to attract even educated people.
No Guarantee at Partial withdrawal
You will not get guarantee highest NAV for your partial withdrawal during any time in policy.So, you will not able to withdraw money with guarantee highest NAV benefits.
Limited and late partial withdrawal
You can not do partial withdrawal before 4th or 5th policy year and you can do partial withdrawal only once in policy year. This will be additional constraints so, you will not be able to utilise this option effectively
Guarantee only at Maturity
You have to be invested for entire policy years (may be 7 or 10 years) to get guarantee highest NAV benefits.
Long wait to get your return
These policies are designed to keep policy holder invested for at least 7 years.This will be long time for any investment. The mutual fund will give good returns for same time too.
High ULIP charges
Don’t forgot this is a ULIP policy which is the costliest policy ever, All your premiums will be deducted with high charges first then the remaining balance will be invest in fund. So, if NAV is Rs 10 and you pay Rs 1000 as annual premium then you will not get 100 units. Rather, you will get around 70 or 80 units only. So, you will not get returns similar to bank fixed deposits too.
Almost No Insurance Coverage
Just calculate 5 times the annual premium will be your sum assured for insurance coverage.Dont you think it no insurance for you?
IRDA Rule - No disclosure for ULIP fund
Every mutual fund has to disclose their fund allocation in equity market by end of business day as suggested by SEBI. But, for ULIP fund which is not compulsory to disclose fund allocation as guided by IRDA. So, there is no transparency in entire ULIP fund allocation.
This concepts may differ based on different companies and policies.
Think twice before taking such Guarantee highest NAV policies.
IRDA finally asked insurance company to stop selling fresh policy under this category..
ReplyDeleteThis should have been done long bank.