Guaranteed ULIPs | Guaranteed ULIP Plans | Personal Finance & Investing
Guaranteed ULIPs
ULIPs are insurance plans which let you invest the premium amounts in equity funds or debt instruments of your choice to get market linked returns. This results in you getting higher earnings for your money. Since the returns on equities are higher than that of other instruments, this is a preferred mode of investment. Although ULIPs offer the investor a choice of funds for varying risk appetites, there is always a degree of risk involved, however small. To avoid taking even the smallest chance, investors traditionally invested in safer instruments like Fixed Deposits, even though the returns were lower. The guaranteed ULIP, introduced by Kotak Mahindra Old Mutual Life Insurance, gives the investor the best of both worlds by guaranteeing the investor’s capital amount. (Also see: Capital Guarantee)
A Capital Guarantee ULIP protects your capital while giving you the benefit of earning good market returns when the market is rising. So, when the markets are falling, you don’t lose your capital and, when the markets are rising, you enjoy good returns. (Read more )
Guaranteed ULIP Plans
The Kotak Safe Investment Plan II (KSIP II) is a market-linked plan that gives you high equity exposure to enjoy the unlimited upside potential of equity markets with the downside risk protected through Guaranteed Maturity Value. A ULIP (Unit-Linked Insurance Plan) with an equity exposure like KSIP II, over a long-term, is known to give consistently better returns than any other asset class vis-a-vis Fixed Deposits or bonds. Fixed interest instruments like a Fixed Deposit are able to only beat inflation, whereas in a capital-guaranteed ULIP, like KSIP II, your money grows safely, with high market returns.
Personal Finance & Investing
How much you invest will depend on your investment goals and your earnings. Requirements will differ depending on your stage of life. For instance, if you’re a bachelor in your early twenties, you may decide that you want to buy a car in 3 years, that you’ll get married after 5 years, and will want to buy a house in 10 years. These are goals that your investments should work towards. It is recommended that you consult a qualified professional financial planner before you start investing. As a thumb rule, however, depending on your age, it is a good habit to save the following percentage of your earnings regularly.
| Age |
Savings as a percentage of Current Monthly Household Expenses |
| 25 |
10% |
| 35 |
20% |
| 45 |
65% |
Assuming that you will retire at the age of 55, you can use the following thumb rule of multiplying your gross annual earnings with the given multiple to calculate the amount that you need to be insured for:
| No. of years left for retirement |
Multiple of your gross annual income |
| Upto 30 years |
20 |
| 30 – 35 years |
15 |
| 35 – 45 years |
12 |
| More than 45 years |
5 |
A common goal for investors is planning for retirement. How much you will require will depend on various factors like
- Your current age
- At what age you want to retire
- You current household expenses
- Your other assets (like property)
- Your children’s age (and how old they will be when you retire)
All these and more factors will contribute to accurately estimating how much you need to plan your retirement. It is recommended that you consult a qualified professional financial planner before you start investing. However, to get an estimate, you can calculate using the following 3 steps:
- 1. Calculate the no. of years left to retire (use the relevant multiple in the table below)
- 2. Calculate your current monthly household expense
- 3. Multiply these two numbers with the magic number 123 and this is the amount you need
to save for your retirement
| Years left to retire |
Multiple |
| 30 years to retire |
4.3 |
| 25 |
3.4 |
| 20 |
2.7 |
| 15 |
2.1 |
| 10 |
1.6 |
Also see: What percentage of my earnings should I keep mark aside as investment?
The fluctuations in the market today are a short-term occurrence. Different instruments fluctuate at different times due to any number of factors. Historically, ULIPs with an equity exposure over a long term are known to give consistently better returns than any other asset class vis-a-vis Fixed Deposits or Bonds. While fixed-interest instruments like a Fixed Deposit may be seen as risk-free, keep in mind that the returns they offer are only able to beat inflation, whereas in ULIPs, there is a good chance of your money growing with market. If you are just starting to invest, then invest with the long-term in mind.
Also see: Understanding Equity
Different investment instruments have different levels of risk and returns associated with them. For instance, Fixed Deposits have no risk and comparatively low returns, while Mutual Funds have a slightly higher risk and relatively higher returns. Each instrument goes through its own cycle of turbulence at different times. It is therefore not recommended that you put all your money in a single investment. Instead, spread your portfolio as much as you can. A good portfolio will have a mix of liquid, high risk – high return & low risk - low return investments. It is recommended that you consult a qualified professional financial planner before you start investing.
A Systematic Investment Plan is investment practice that allows the investor to beat market trends.One way to get high returns in the market is to time the market. This means that one needs to predict which stocks are going to rise in value soon, and invest in them now. However, there is no fool-proof way to do this, and one can only make an educated guess while predicting. The SIP avoids this gamble because, instead of playing on the market highs and lows, it averages out the market by investing small amounts over a longer term, thus picking up units at various different amounts. In addition, a SIP does not burden your pocket with lump-sum capital requirements.
Turbulence is present in varying degrees in any investment instrument.Dips in the market should only worry the short-term investor. A long-term investor should look at overall returns to determine if there they are rising or falling. Regardless of market volatility, data shows that, in the long term (over 5-10 years), equities have the highest payoffs.
The table below shows the market capitalisation of the Indian market since 1996. Note the various cycles it has gone through (the dip in ’97, the growth in 2000, the subsequent dip in 2001 etc.). The short-term investor, therefore, would have made a loss. However, you can see that overall, there has been a tremendous overall growth over a 11-year period (1996 – 2007). The long-term investors would have profited.
| At the End of Financial Year |
S&P CNX Nifty |
Sensex |
Market Capitatlisation (Rs. Million) |
| 1996 |
985.3 |
3,366.61 |
57,22,570 |
| 1997 |
968.85 |
3,360.89 |
48,83,320 |
| 1997 |
968.85 |
3,360.89 |
48,83,320 |
| 1998 |
1,116.65 |
3,892.75 |
58,98,160 |
| 1999 |
1,078.05 |
3,739.96 |
57,40,640 |
| 2000 |
1,528.45 |
5,001.28 |
1,19,26,300 |
| 2001 |
1,148.2 |
3,604.38 |
76,88,630 |
| 2002 |
1,129.55 |
3,469.35 |
74,92,480 |
| 2003 |
978.2 |
3,048.72 |
63,19,212 |
| 2004 |
1,771.9 |
5,590.6 |
1,31,87,953 |
| 2005 |
2,035.65 |
6,492.82 |
1,69,84,280 |
| 2006 |
3,402.55 |
11,280 |
3,02,21,900 |
| 2007 |
3,821.55 |
13,072.1 |
3,54,88,081 |
Source: ISMR 2007
Markets are volatile, and short-term investments may result in a loss.
The table below shows the market capitalisation of the Indian market since 1996. Note the various cycles of the Sensex. It has gone through (the dip in ’97, the growth in 2000, the subsequent dip in 2001 etc.). The short-term investor, therefore, would have made a loss. However, you can see that overall, there has been a tremendous overall growth over a 11-year period (1996 – 2007). The long-term investors would have profited.
| At the End of Financial Year |
S&P CNX Nifty |
Sensex |
Market Capitatlisation (Rs. Million) |
| 1996 |
985.3 |
3,366.61 |
57,22,570 |
| 1997 |
968.85 |
3,360.89 |
48,83,320 |
| 1997 |
968.85 |
3,360.89 |
48,83,320 |
| 1998 |
1,116.65 |
3,892.75 |
58,98,160 |
| 1999 |
1,078.05 |
3,739.96 |
57,40,640 |
| 2000 |
1,528.45 |
5,001.28 |
1,19,26,300 |
| 2001 |
1,148.2 |
3,604.38 |
76,88,630 |
| 2002 |
1,129.55 |
3,469.35 |
74,92,480 |
| 2003 |
978.2 |
3,048.72 |
63,19,212 |
| 2004 |
1,771.9 |
5,590.6 |
1,31,87,953 |
| 2005 |
2,035.65 |
6,492.82 |
1,69,84,280 |
| 2006 |
3,402.55 |
11,280 |
3,02,21,900 |
| 2007 |
3,821.55 |
13,072.1 |
3,54,88,081 |
Source: ISMR 2007
Unfortunately, there is no way of protecting your savings from inflation. To beat it, you need to invest your savings through different instruments whose payoffs beat inflation. The following chart gives you a comparison of different types of instrument, and their respective payoffs with respect to inflation.
| Type of Investments |
Rate of interest |
Inflation rate |
Real rate of return |
| Fixed deposit |
8.5 per cent |
11 per cent |
-2.25 per cent |
| National Saving Certificate |
8 per cent |
11 per cent |
-2.7 per cent |
| Public Provident Fund |
8 per cent |
11 per cent |
-2.7 per cent |
| Post office Monthly Income Scheme |
8 per cent |
11 per cent |
-2.7 per cent |
| Post Office Recurring Deposits |
7.5 per cent |
11 per cent |
-3.15 per cent |
| Post Office Senior Saving Citizen Scheme |
9 per cent |
11 per cent |
-1.8 per cent |
| Post Office Time Deposit (5 Years) |
7.5 per cent |
11 per cent |
-3.15 per cent |
| Kishan Vikas Patra |
8.25 per cent |
11 per cent |
-2.48 per cent |
| Debt Fund -- Income Fund |
8.5 per cent |
11 per cent |
-2.25 per cent |
| Debt Fund -- Liquid Fund |
8 per cent |
11 per cent |
-2.7 per cent |
| Debt Fund -- Floating Rate Fund |
8 per cent |
11 per cent |
-2.7 per cent |
| Debt Fund -- Gilt Fund |
6.5 per cent |
11 per cent |
-4.05 per cent |
| Equity Fund -- Diversified Fund |
15 per cent |
11 per cent |
3.6 per cent |
| Direct Equities |
15 per cent |
11 per cent |
3.6 per cent |
NOTE: Returns on debt and equity funds are on a ten-year average. The tax component has not been taken into consideration. If tax is taken into consideration the real rate of return will be further down on the negative chart.
Source: “How to beat inflation”. Sheetal Jhaveri. Rediff Money.
As suggested by this mantra, anytime is the right time to invest bcecause what matters is your staying power, i.e. how long you can stay in the market. You should therefore start investing as soon as possible. When you have time on your side, your investments grow most from compounded interest and gain from the long-term market returns.
Also see: Why is a long term investment required in the market?
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| Q |
Will Kotak Safe Investment Plan II get me any Tax Benefits? |
| A |
Yes, you get tax benefits under Section 80C and Section 10(10D) of Income Tax Act, 1961. |
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| Q |
With the markets showing volatile behavior, is this a good time to invest in equities? |
| A |
A famous adage about investing goes like this. "It’s not about timing the market, but about time in the market" |
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