Posts Tagged ‘market fluctuations’

Are There Any Advantages of Systematic Investment In ULIPs ??

 Benefits of ulips.jpg

The impact of economic recession on life insurance companies has gone unnoticed where not only premium incomes but also the employment potential of many companies has decreased.

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However, the global slowdown and resulting unpredictable stock indices have shaken public confidence in long-term financial planning and there is visible unwillingness to purchase an insurance policy and commit oneself to pay premiums regularly over a number of years.

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Moreover, the Sensex, over the last 25 years, suffered massive crashes in 1992-93, 2000-01 and 2008-09 at eight year intervals.

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However, there was no impact on the life insurance industry on earlier occasions, when the index crashed whereas till the opening of the insurance sector, the Life Insurance Corporation was marketing traditional products, considered symbols of stability and security, immune to the vagaries of the stock market.

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Moreover, the new companies that came on the scene, trying to capitalize on the stock market boom, began marketing unit linked products, ignoring traditional products.

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However, although the Sensex had crashed three times, it had advanced from just 245 in March 1984 to 9700 in March 2009, an annual growth of 16% while stock market indices tend to increase steadily under the influence of economic growth and inflation.

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Nevertheless, under the impact of speculative forces, the growth can be uneven while investors can minimize, if not eliminate, the impact of speculative forces through systematic investment in ULIPs or mutual funds.

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Moreover, under a unit linked plan, the premiums are invested in equities and the value of the units on any day moves broadly in line with the stock index on that day.

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Suppose a person had taken out a ten year policy on March 31, 1984 and paid Rs. 1,000 every year.
Ignoring all charges and the dividend income from investments, what is the gross yield he can expect by March 1994?

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Based on the changes in Sensex, the average yield will be 17.8 per cent. 🙂

If the date of commencement had been March 1985 or 1986 … or 1999, the yield to maturity at the end of ten years would have varied between 4.8 per cent and 30.3 per cent.

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And in four of the 16 cases the yield would have been negative.

The range of variation is quite wide and the chance of negative yield is 4 out of 16, or 25 per cent.

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The range will narrow down and chances of negative yield come down with increasing policy terms.

The results will be still better with quarterly or monthly modes of premium payments.

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This means that an investor in ULIPs should opt for a minimum term of 15 years and, preferably, a quarterly mode of payment.

And, having chosen a plan, he should select a fund with more than 50 per cent equity content.

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Even if the market takes a sudden plunge after the policy is taken, be not panic and allow the policy to lapse.

One should pay the next premium in time.

With a lower net asset value, he can get more units for the same premium.

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Market setbacks at the earlier stages of a policy will not significantly affect the yield to maturity.

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But any setback in the last few years before maturity can reduce it considerably.

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It is therefore advised that the policy holder should start keeping a close watch on the NAV of the relevant fund and the market indices.

If there are indications of a downtrend, he should surrender the policy and take out the cash value.

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By following the above steps one can insulate oneself, though not fully, from market fluctuations and hope to get a better return than what one can get from a traditional product.

🙂

A lucky few may even get a very high return while the unlucky ones may end up with very low or even negative returns.

🙂

Suppose a person had taken out a ten year policy on March 31, 1984 and paid Rs. 1,000 every year.

Ignoring all charges and the dividend income from investments, what is the gross yield he can expect by March 1994?

Based on the changes in Sensex, the average yield will be 17.8 per cent.

If the date of commencement had been March 1985 or 1986 … or 1999, the yield to maturity at the end of ten years would have varied between 4.8 per cent and 30.3 per cent.

And in four of the 16 cases the yield would have been negative.

The range of variation is quite wide and the chance of negative yield is 4 out of 16, or 25 per cent.

The range will narrow down and chances of negative yield come down with increasing policy terms.

The results will be still better with quarterly or monthly modes of premium payments.

If dividend incomes from investments and the fact that fund managers invariably outperform the market index are also taken into account, the net yield after deduction of charges may exceed the gross yield.

This means that an investor in ULIPs should opt for a minimum term of 15 years and, preferably, a quarterly mode of payment.

And, having chosen a plan, he should select a fund with more than 50 per cent equity content.

Even if the market takes a sudden plunge after the policy is taken, be not panic and allow the policy to lapse. He should pay the next premium in time. With a lower net asset value, he can get more units for the same premium.

Market setbacks at the earlier stages of a policy will not significantly affect the yield to maturity. But any setback in the last few years before maturity can reduce it considerably.

It is therefore advised that the policy holder should start keeping a close watch on the NAV of the relevant fund and the market indices. If there are indications of a downtrend, he should surrender the policy and take out the cash value.

By following the above steps one can insulate oneself, though not fully, from market fluctuations and hope to get a better return than what one can get from a traditional product.

A lucky few may even get a very high return while the unlucky ones may end up with very low or even negative returns.

India,slum-free in five years???

Housing for India’s urban poor

Housing for India’s urban poor

New projects provide hope of housing for India’s urban poor

The UPA government may be overreaching with its stated intention to make India slum-free in five years, but it is a step in the right direction.

A 2001 United Nations estimate pegged the number of the world’s slum-dwellers at 924 million; 31.6 per cent of its urban population.

Doubtless, the number is far higher now. The majority of these, by far, are in Asia, in cities such as Mumbai and Kolkata, ratcheting up the pressure on our already creaking urban infrastructure to dangerous levels. The problem must be addressed now.

And although it is early days yet, it appears that a new wave of companies – including the likes of Tata Housing Development, Value and Budget Housing, Godrej Group and Ansal Properties – may be doing so with new projects aimed at low-income groups.


So far, the real estate and housing boom in Indian metros has been fuelled by the growth of a middle class that has been expanding with liberalisation and the growth of the Indian economy. It has fed upon itself, creating a housing bubble. It is not a mechanism that can be sustained, as we are already starting to see.

Price levels that have been rising for years have run headlong into the global financial crisis, and the simple rules of demand and supply have come into play.


But at the bottom of the pyramid, there is immense scope for expansion with economically weaker sections and low-income groups accounting for close to 99 per cent of the urban housing shortage of 25 million units. To exploit this opportunity effectively, however, a change in mindset and approach is needed.

Profit margins must be lowered from their current skyscraper levels. Projects must be completed and handed over within a short time frame to produce working capital and preclude price hikes because of market fluctuations. High volume sales would make up for the lower pricing of individual units while making housing accessible to a far larger section of the urban population.

It is this logic that the new entrants in the low-income housing sector seem to be employing. However, quality must not be compromised in an effort to contain prices. Neither is simply increasing the supply of lowcost housing enough; there must be provisions to supply financing to potential buyers as well.

And distorted land markets in our cities must be set right to increase the availability of land for development. But these are not insurmountable problems. Public-private partnerships might supply some of the answers, providing developers with the financial muscle and flexibility required to deliver on their projects without cutting corners.

The opportunities must be explored and solutions found. If this new market logic is harnessed, the government’s objective may be at least partially fulfilled.