Investment Strategies for Unit Linked Insurance Plan

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Published: 20th July 2012
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Regulators have made efforts to bring more transparency in the investment market over the years. Most of these efforts have proved very positive for investors. The steps taken by the regulators directly affect the investors in the market who are willing to enter into the equity market through the life insurance policies, unit investment plans.

There are some special advantages of these steps taken by regulators :-
1.)To control unit-linked insurance plan
2.)Issuing guidelines for the portfolio management services
3.)Remove the entry load from mutual funds
4.)Controlling sales of unit linked plans

What is unit linked insurance plan (ULIP) ?

It is a systematic investment plan which also offers a life insurance scheme to investors. The policy value varies according to the current market price. That is why it is advised to invest for long term in these plans.

Strategies for investing in unit linked insurance plan:-

1.)3 years lock in period should be increased to 5 years:- Ulips are basic asset equity. To check how the equity is performing, it is advised to invest for 5 years.By increasing the lock in period the Investor's trust and credibility in the ULIP products will also increase.
2.)Divide your investment amount into equal parts:- Before the introduction of these regulations the ULIP companies used to take maximum amount of investment in the starting 3 years due to which the investors could not get the benefits of changes in the tariff plans. By dividing the fund into equal parts investors get the maximum benefit of compounding into the last years of the plan too.
3.)Changes in Sum assured:- It is decided to change the assured sum. This step is taken with a vision to make unit linked investment plans more a insurance plans and less a investment one. Now the investors get 10 percent more assured sum than earlier.
4.)4.5 per cent return on pension schemes:- To take care of senior citizens the return on pension schemes has been increased by 4.5 %.
5.)Changes in surrender charge:- Earlier before this changes in the regulations the insurance companies used to charge a huge amount for surrendering the policy. However, now the companies are allowed to collect only the required client execution charges.

The main objective of these changes to make insurance policies more transparent and to equivalent the rights of policyholders and insured persons.As a result,curb selling of insurance products has been prevented.

Here are some of the objectives behind these changes in the regulations.

1.)To increase the trend for long term investors.
2.)To prevent the curb selling of unit linked plans
3.)To increase the insurance cover
4.)To minimize the risk of investment for senior citizens


Here are the stated guidelines after the changes in the regulations for Portfolio Management Services
1.)To limit the minimum investment amount up to 85 million:- According to current guidelines of SEBI the minimum amount required to open a PMS account is 5 million. Earlier the SEBI used to accept the application for opening a PMS account for less than a amount of 5 million.
2.)To remove the entry load from mutual funds:- SEBI has banned the entry load amount from the mutual funds.It will definitely change the way of business of mutual funds.

Effect of these changes :-
1.)High returns on investment
2.)A sharp decline in new fund offers
3.)Improvement in the quality of mutual fund services
It is being expected that these changes in the regulations will safeguard the rights of customers in the mutual fund industry. Author Ankit Raut is a technical research analyst in a Indian stock market investment advisory firm which gives recommendations, share tips, mcx intraday tips, nifty intraday tips tips for investing in Indian stock market.

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