Three years ago, I invested in an Insurance plan in India hoping my money invested over a period of 5 years will double in 10 years. Honestly, I did not do enough research and did not even know I had invested in an ULIP (Unit Linked Insurance Plan). No surprises, the money invested over a period of 3 years did not grow and it was also negative(less than my total investment) at times.
After 3 years, since my money did not grow and since the fund value was less than what I had invested, I did some research and found out that I had invested in an ULIP.
What is ULIP? ULIP is Unit Linked Insurance Plan – Linked to the market and also they provide you with an insurance cover. The wikipedia page can give you more insights.
Should I invest in ULIP? Here is my experience. With the hope that my money would double in a period of 10 years and I will have a tax free income, what happened was not so positive. Caution: I did not wait 10 years (Like they ask you to wait). However let us assume I invested Rs. One lakh a year for a period of 3 years, at the end of year three, my fund value was less than Rupees 3 Lakhs. On more research on why my money did not grow, I found out the following:
When you invest in an ULIP plan it is important to understand the charges.
|Charges||Percentage||E.g (Invest Amount of Rs. 1,00,000) per year|
|Premium Allocation||5%||Rs. 5,000|
|Policy Administration||2.1%||Rs. 2,100|
|Mortality Charges||1.1 to 1.52%||Rs. 1,100 to Rs. 1,520|
|Fund Management Charge||1.35%||Rs. 1,350|
|Applicable Taxes||1.7 to 2.7%||Rs. 1750 to Rs. 2750|
As you can see, the charges for a Rs. 1,00,000 investment is Rs. 12,000 or more *during the first 5 years. These are not exact numbers and can vary based on the plan. As you can see, on a Rupees 1 lakhs investment for a year, you are paying about 12% to someone to manage your funds. I did not want to pay someone 12% to manage my money and hence decided to drop out after year 3.
Here is a youtube link if you want to hear my experience.
If you are interested in the Tamil version of the same, here is the youtube video.
Should you consider investing in ULIP, do you research, understand all the charges and then if it makes sense go for it.