Investing in a Unit Linked Insurance Plan is one of the smartest strategies for investors keen on achieving long-term financial goals. And in today’s financial markets, there’s no dearth of ULIP schemes offered by leading banks and financial institutions. As a result, choosing the right plan may require significant analysis and comparison. Selecting the Best ULIP Plan in India 2020 requires an evaluation of certain parameters associated with plans you’re considering. Here’s a preview of some important factors you need to consider, and a quick look at how Wealth Secure+, Edelweiss Tokio Life’s flagship ULIP scheme, excels in these areas.
- Internal Rate of Return (IRR): The internal rate of return of a unit-linked insurance scheme is a key parameter in ULIP evaluation. Essentially, the IRR of a unit-linked plan gives you a clearer picture of its profitability. Mathematically speaking, this is the rate at which the present value of all future cash inflows from the ULIP scheme equals the present value of all future cash outflows linked to the plan. In other works, the IRR is the discount rate at which the net present value of future cash inflows and outflows is zero. To consider a ULIP scheme worthy, the IRR associated with the plan must exceed your expected return on investment. Wealth Secure+ from Edelweiss Tokio Life offers a choice of multiple funds, each of which comes with attractive internal rates of return.
- Fund Management Charges (FMC): Investors often consider the premium charged as a key factor to identify the best ULIP plans for their budget. However, in addition to factoring in the premium, you also need to take the fund management charges into account if you’re interested in finding a unit-linked plan that’s affordable. A typical ULIP scheme includes several funds into which your money is invested. Insurance companies levy fund management charges in exchange for managing the funds in a ULIP. FMC is charged as a specific percentage of the fund value. It is calculated and deducted from the asset value on a daily basis to arrive at the Net Asset Value (NAV) of a fund. Edelweiss Tokio Life’s Wealth Secure+ plan has 7 funds, all of which only levy nominal fund management charges not exceeding 1.35% of the fund value, with some fund management charges as low as 0.50%.
- CRISIL Ranking: CRISIL, India’s leading credit-rating agency, ranks the ULIP schemes available in the financial market on the basis of the costs associated with them and the performance of the fund’s portfolio. The CRISIL ULIP ranking system is another excellent parameter to help you find the best ULIP plans for your financial profile. To identify the insurance companies whose products are eligible to be featured in its ranking structure, CRISIL lists the following criteria.
- The company should offer active ULIPs.
- It should have a performance history of at least five years, as on the date of the CRISIL ULIP ranking analysis.
- The company should offer at least one fund from any one or more of the following classes:
- Equity funds: large-cap, mid-cap, or multi-cap funds
- Debt funds: long-term or short-term funds
CRISIL also has a set of criteria for the ULIPs from qualifying companies to make it to the ranking list. These criteria are as follows.
- The ULIP must be open for subscription.
- The policy term must extend up to a 10-year or a 20-year period.
- The policy must be offered to individuals who are 30 years of age.
- In case of a regular premium plan, the premium investment must be Rs. 1 lakh or Rs. 6 lakhs.
- In case of a single premium plan, the premium investment should be Rs. 8 lakhs.
- The premium-payment term must equal the policy term.
In the most recent CRISIL ULIP ranking order, Wealth Secure+ from Edelweiss Tokio Life has topped the list of online ULIPs in the 1 lakh premium category as well as the 6 lakhs premium category. Another ULIP from Edelweiss Tokio Life, the Wealth Ultima plan, bagged the second place in the cost rank structure, proving that these ULIPs are affordable and designed to help investors maximize their profits.
- Fund performance: Fund performance gives you a better understanding of how the funds in a ULIP have performed in the past. Each fund has a benchmark return and an actual return, and needless to say, if the actual return exceeds the benchmark, it reflects positively on the performance of the fund. The benchmark is revised each new year, so investors can use the most recent data for ULIP evaluation and comparison. The Wealth Secure+ plan offers 7 funds, of which 4 are equity funds, 2 are debt funds, and 1, a hybrid fund. In recent years, the funds associated with this plan have consistently performed well, with their returns exceeding the benchmark significantly. For instance, Equity Top 250, which is one of the equity funds offered by the plan, has delivered a return of 15.03% since the past 7 years. This is much higher than the projected 7-year benchmark of 11.65%.
- Customizable Features: ULIPs are generally long-term investment options. As a result, the term of these policies may be as long as 10 years, 20 years, or more. Over the course of this period, your investment profile, your risk appetite, and your financial goals may possibly transform. It’s for this reason that the best ULIP plans offer a variety of customizable features and flexible options for investors to choose from. Before you zero in on a ULIP scheme, ensure that it offers enough room for you to grow into as your investment goals evolve. These are some of the flexible options and customizable features you should look for:
- Changes in the premium payment term: Some ULIPs offer the option of changing the length of the term over which premium needs to be paid. Having this feature helps you increase or decrease the term in the future, depending on your financial status and your income.
- Fund switches: The various funds in a ULIP invest in different asset classes such as equity, debt, and a mix of both. Plans that offer you the choice of switching between funds for a specific number of times each year can prove to be extremely beneficial. This is because you can modify your portfolio depending on factors like your risk profile and the market conditions, both of which are subject to change with time.
- Partial withdrawals: While the funds in your portfolio typically remain locked till the end of the policy term, ULIPs that support partial withdrawals allow you to withdraw a portion of your funds, subject to specific conditions. The advantage of this flexible feature is that you can make use of partial withdrawals to tackle any financial emergencies without any hassle.
- Top-up premiums: Like most investors, you, too, may opt for the plan with the lowest premium initially. However, as the years go by, your investment budget could grow, thanks to promotions or a side hustle. In cases like these, you can avail the top-up feature offered by some ULIPs. This feature allows you to increase the premium you currently pay, so you can take advantage of a fund that’s performing well or increase the sum assured under the plan.
The Wealth Secure+ plan offers all of these customizable features. You can take advantage of the 5 pay 5 stay option under this ULIP, wherein you can limit your investment to a 5-year period, after which you’re free to withdraw a part or all of your fund value. This makes the Wealth Secure+ plan ideal as a short-term investment option as well. Furthermore, with an option to begin saving at an affordable budget of Rs. 1,000 each month, it’s no wonder that this ULIP has topped the list of plans in the cost ranking structure released by CRISIL.
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