In a market marked by vagaries and intermittent volatility, non-resident Indians (NRIs) are looking for clear direction about to where to invest for the future that offers some kind of protection, for both their capital and lives.
Investment advisers suggest unit linked insurance plans (Ulips) meet all these objectives.
“For those investors who are looking for assured returns, the Indian market today is well poised to offer investment plans that offer excellent guaranteed returns where one can lock in their money for as long as 45 Years,” said Vivek Jain, head of investments at PolicyBazaar.com.
Many NRIs put their money in instruments in the expectation of good returns, but ignore the protection factor. The recent pandemic-induced uncertainty has led many NRIs to seek protection along with a decent return on their investments.
The search often ended in Ulips as the preferred investment choice, even though they have been in the market for decades.
Ulips are a unique blend of investment and insurance components. The premium paid by the investor is divided into life cover and equity investment. The plans generally carry a minimum of a five-year lock-in period and the policyholder can even switch between the funds during that time.
The mortality charges are returned to the investor upon maturity. Mortality charges are levied by the insurer to cover the risk of death in investment plans. For example, if one invests his/her money for 15-20 years, he/she stands to gain returns as high as 12-15%. He/she can also always avail tax benefits on the plans.
As far as savings are concerned, the preferred option for most households used to be fixed deposits. But falling interest rates have changed this trend. The average returns that FDs offer is a taxable 5%. When adjusted for the present inflation rate of 5.3% in India, the real returns are negative.
“Here is where investors look for better alternatives that guarantee positive returns. Savings cum investment plans offer a guaranteed returns on long term investments. Further, they guarantee a payout in case of the sudden death of the policyholder,” said J Jojo James, chief executive, Fosbury Wealth Managers, and partner of Tamim Chartered Accountants, Dubai.
“This not only secures your present but also your future. These plans can offer a tax-free return of 6-6.5%. The zero risk nature of these plans is their USP. Irrespective of market volatility, they offer the promised return to the policyholder. They also allow your money to be locked in for a period of 30-35 years, which guarantees higher returns,” he said.
Investors who look for less risky and guaranteed returns have the option of a hybrid of Ulip and guaranteed return plans called Capital Guarantee Solutions that offer the best of both.
These instruments provide security to the invested amount in the event of market volatility as the fund managers take advantage from the upside of the market.
Most plans split 40% into guaranteed return plan and 60% into Ulips. The added benefit is that the dependents receive the life cover in the event of the death of the policyholder, which is 10 times the annual premiums paid.
The plans also offer tax benefits on premiums, as well as on the maturity amount.
“These plans are ideal not just for you, but also for your dependents due to the insurance component. If you invest in Child Capital Guarantee Solution, their future is secured even if you are not around. In the event of the policyholder’s death, the life cover helps meet immediate expenses. The unique in-built feature of waiver of premium ensures that the future premiums are waived off. The child gets a regular monthly income and receives fund value upon maturity,” Jain said.
For retirement planning, NRIs have the option of choosing a prudent, risk-free annuity plans that secure their sunset years.
The flip side
The optimum potential of Ulips was less tapped by investors because of some myths spread by interested fund houses after the securities market regulator curbed upfront commissions.
Agents used to pocket up to 40%, with rampant misselling, in the initial years of the launch of many Ulips.
Later, this commission was limited to 6.4%, making it more transparent but less attractive for agents to sell them. Ulip benefits were less understood by investors which led to many investors surrendering their plans before they realised their optimum potential.
“Investors should know the advantages of Ulips such as high returns, systematic investment plans (Sip), top-ups, tax benefits, premium waivers, and the flexibility to switch between an asset mix comprising equity or debt using the same policy,” James said.
“Ulips offer a safe path to wealth creation with the added benefit of life cover, the two main concerns for most individuals. The insurance coverage offers a longer tenure which enhances peace of mind,” he said.