UTI Ulip’s bonus not exciting enough
UTI MUTUAL Fund’s unit-linked insurance plan (Ulip) has declared a bonus for its policyholders. It will add one unit on every 10 units held by the investor.
In this Ulip, you only have the balanced fund option under which you can invest in 60-100% in debt instruments and the remaining in equity. The Ulip’s fund has outperformed its benchmark, Crisil Debt Hybrid, in the last three years.
However, the bonus it has announced is nothing to write home about. To add one extra unit for every 10 units, the Ulip will reduce the net asset value (NAV) of each unit accordingly. For example, if you have 10 units with an NAV of Rs10 each, to add the 11th unit, the Ulip would reduce the NAV of all 11 units to Rs9.09 so that the total value remains the same. Incidentally, mutual funds do the same when paying dividends on their schemes. The value of the fund comes down by the amount of dividend declared.
The UTI Ulip come for a term of either 10 or 15 years. The death benefit, which is equal to the sum assured, ranges between Rs15,000 and Rs15 lakh. So, if your sum assured is Rs15 lakh and you choose a period of 15 years, then every year you will have to invest 1/15th of the sum assured, which comes to Rs1 lakh.
UTI has tied up with Life Insurance Corporation of India (LIC) to give the life cover. You can choose two life cover options. First is called the declining term cover, which means the cover keeps declining to the extent of the instalments paid. Here, a smaller part of each year’s instalment gets deducted as mortality charges, which means that a larger part is invested. So, in the above example, if the investor has paid Rs1 lakh in the first year, in the second year, his cover would reduce by that much and reduce to Rs14 lakh. In this case, if the policyholder dies before the term ends, the company will pay the remaining instalments and the fund value. So, if the investor dies in year two, the company will pay Rs14 lakh and the fund value.
The second option is called the fixed term cover. In this case, the cover remains the same throughout the term. If the investor dies, the company would pay all the instalments—Rs 15 lakh—as well as the fund value.
Apart from mortality charges, the annual expense ratio of the fund is 1.6% and the exit load is 2%. This fund gives you tax deduction of up to Rs1 lakh under section 80C, but on the maturity amount you would have to pay capital gains tax.
Firms queuing up to enter MF industry
THE LAUNCH of new fund offers (NFOs) and entry of new fund houses may have lost pace after the Securities and Exchange Board of India’s 1 August 2009 diktat of banning entry loads, but that hasn’t stopped them from entering the industry entirely.
Peerless Funds Management Co. Ltd has launched its first two funds recently—Peerless Liquid Fund and Peerless Ultra Short Term Fund. On the other hand, L&T Finance Ltd, Larsen and Toubro Ltd’s financial services arm, completed the acquisition of BS Cholamandalam Asset Management Co. Ltd (DCAM).
Around half a dozen more companies are in the queue to enter the Rs7.6 trillion Indian mutual funds (MF) industry.
Last year, after Sebi banned entry loads, life got tougher for the MF industry. Entry loads were upfront charges imposed on the investor that were then passed to the agents as their commission. Sebi abolished entry loads in August and said that agents will have to collect the same directly from investors. As a result, agents, especially bank-based distributors, shifted to selling the highly remunerative unit-linked insurance plans. Sale of mutual fund units fell and MFs bore the brunt. The entry of new funds, though, shows that serious firms still find the Indian MF industry an attractive one.
Kayezad E. Adajania