Investing Through ULIPs

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ULIP
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Investing Through ULIPs
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• Last month, my friend, who is a young software
  engineer in his early 30's decided to start
  investing. I thought all my lectures to him
  regarding compounding effect and early investment
  benefits paid off. But, fate had it that he went
  to a private bank for opening a FD and returned
  home with a ULIP policy. Realizing this fact I
  did a further inquiry and found all agents of
  Indian private banks are discouraging their
  prospects from buying fixed deposits and
  persuading them to go for ULIPs. Further, they
  claim that it's a three year investment with free
  insurance of --- amount and assured returns on
  endowment. Bank agents still keep singing about
  USPs of ULIPs as investment proposal.
• Here's what those agents won't tell you
• ULIP is not an investment but an insurance plan
  coupled with a few market benefits.
• ULIP is a very focused instrument for a very
  specific need, its not supposed to be treated as
  a high return alternative to bank FDs.

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• In fact it is not even an investment instrument.
• There are no assured returns in ULIPs.
• It is much riskier than the underlying
  investments, as, even if the underlying
  investments give negative returns, the banks
  still deduce all administrative charges.
• Coupling the above fact with the current slowdown
  period, many investors' returns reached -100
  i.e. their policy became null and void.
• Most of the ULIP premium paid in first three
  years is consumed in administrative costs like
  agent commissions, fund manager fees, insurance
  premiums and other fixed costs. As the agent
  cannot receive any commission after these three
  years, they claim that ULIP is for fixed period
  of three years.
• So, ULIP is NOT suitable for you if
• You are in very early stages of your career and
  don't have many financial burdens

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• You already have a good insurance plan either
  individual or through your employer
• Your only need is good returns of your hard
  earned money
• You don't want to couple your investments to
  market risk
• You have the time and understanding to invest in
  stock markets and make money
• Your investment needs are less than 10 years
• You have some huge and predictable expenses in
  the next three to five years
• Unfortunately my friend got hit through most of
  the above points as his age is 25, works for a
  MNC offering insurance benefits and will be
  marrying in the next 2-3 years. In fact most of
  the people get hit in at least one of the above
  points. ULIP is neither a good investment
  instrument nor an efficient insurance policy as
  it can neither match the returns of other market
  based instruments nor can it be so versatile like
  modern insurance covers. It is designed to
  deceive the innocent customers.

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