I don’t generally write about ULIPs but once in a while it’s useful to see how bad these products have been. We wrote a long post about HDFC Crest which was being missold by bankers as if it was a fixed deposit.
Now there are many reasons why the ULIP is a bad product.
- Very little insurance
- Useless Guarantee
- High Costs (that are removed as fees in terms of number of units, thus making it non-transparent too!)
- Elusive Tax Benefits
- And Lastly Substandard returns compared to other instruments.
But Just Compare Returns, No?
Forget all the fees and all that. That’s highway robbery and terribly disgusting behaviour but what you can do, these are relationship managers with targets who don’t give a damn. One day, banks will be classified as brokers and we’ll get our day in court. Meanwhile, let’s see how bad the performance of a ULIP is.
If you take the same HDFC Crest for the last five years and compare it with a tax-saving fund from the same brand- HDFC – you will find the comparison simple. NAV or Net Asset Value Per Unit is simply how your corpus has multiplied over years.
- Both the HDFC Crest ULIP options – there are multiple but we chose two, the Bluechip Fund and the Opportunities Fund – have underperformed the same brand’s Mutual Fund called HDFC Long Term Advantage Fund.
- And has underperfomed by 8%!
- As in, you would have made 8% more if you invested in the mutual fund instead.
- You think they’ve at least beaten the Nifty? Ooh. But hang on, Nifty has a 2% dividend per year – add that and the Nifty would have beaten it.
Agents will tell you – but we give you insurance. Sure but the insurance is cut from your corpus (not the NAV) and you can get a way better deal by using a term plan instead. (The post has the calculations)
ULIP sellers tell you they have “lower management fees”. Guess what, the lower management fee is supposed to reflect in a better NAV performance (since management fees are the only fees to be deducted while calculating NAV). But when you look at the chart above, it’s obvious this is just a flimsy excuse.
If you were missold this policy the least the insurer could have done is at least make it up through performance. But No. Just do not buy ULIPs.