ULIPS are a long term Investment

I have recently come across agents selling ULIP's as three year plans. You might hear them ask you to invest for just three years and then reap the benefits.
All this in my opinion is miselling. Investing in ULIP's work only if your investment horizon is more than 10 years.

Below is an illustration of returns from HDFC Unit Linked Endowment Plus based on term of the plan.
These illustrations are for a 34 year male. Assuming returns of 10% per annum the following is what the figures look like.

Term : 3 years
Premium : Rs.25,000 per annum
Sum assured : Rs.1,25,000
Total premium paid : Rs.75,000
Fund balance at the end of 3 years : Rs.68,976
Net return on investments : Loss of Rs.6,024 on principal

Term : 10 years
Premium : Rs.25,000 per annum
Sum assured : Rs. 1,25,000
Total premium paid : Rs.2,50,000
Fund balance at the end of 10 years : Rs.3,17,657
Net return on investments : 7.17%

Term : 15 years
Premium : Rs.25,000 per annum
Sum assured : Rs. 1,87,500
Total premium paid : Rs.3,75,000
Fund balance at the end of 15 years : Rs.7,37,790
Net return on investments : 8.07%

Term : 20 years
Premium : Rs.25,000 per annum
Sum assured : Rs. 2,50,000
Total premium paid : Rs.5,00,000
Fund balance at the end of 20 years : Rs.13,01,447
Net return on investments : 8.43%

Term : 25 years
Premium : Rs.25,000 per annum
Sum assured : Rs. 3,12,500
Total premium paid : Rs.6,25,000
Fund balance at the end of 25 years : Rs.13,01,447
Net return on investments : 8.62%

Clearly, if you look at the net returns, investment in ULIPs only work if you plan to stay invested for long term. If someone is selling you a ULIP for a time frame of 3 to 5 years, it will not work. All he is doing is mis-selling

Investment returns for government issued bonds is also around 8%. After investing for 20-25 years we get around 8.5% interest rate.


Tips

  • Do not exit before the Ulip matures.
  • If you need to withdraw, do it partially, and only if there's an emergency.
  • Take 100 per cent equity exposure when the maturity is over five years away.
  • Review you life cover needs and increase the cover, if required.
  • Use top-up facility to deploy surplus funds.