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The Many Disadvantages of ULIPs

Even though HDFC Click 2 Invest is a low-cost ULIP, it does carry the other disadvantages of a ULIP

I want to buy HDFC Click to Invest ULIP plan for 20 years with a premium of Rs 2 lakh a year as it has low charges. It would be great if you can guide me on this.
My age is 28 years. I am married with no children and earn Rs 6 lakh a year.
My questions are
Is it prudent to go for a ULIP? Does HDFC have any hidden charges in this ULIP? If you have any better option other than HDFC ULIP then please let me know.

- Nagendra Singh

HDFC Click 2 Invest is a low cost ULIP which just charges for mortality risk and managing the fund (at 1.35 per cent per annum) and invests the rest of the premium. But apart from this low cost advantage, it has all other disadvantages of a ULIP.

We don't recommend ULIPs as a rule because it is not advisable to mix up insurance and investment. Term insurance is the best way to get a life cover and mutual funds are best suited to meet investments needs. Even low cost ULIPs do deduct mortality charges before investing your premium.

Costs apart, mutual fund score over ULIPs on other factors too. ULIPs have a 5 year lock in period and lack the liquidity of open end mutual funds. These are market linked plans and if the plan doesn't perform you should be able to switch to a better fund. They also lack the transparency of open end funds, on NAVs, portfolios and fund manager strategies. You can refer to the following link as a reference for further details: Insurance vs Mutual Funds.

You can choose a balanced fund to invest systematically as you are a first time investor and then increase your investments in other funds. Some of the balanced funds you can choose from are HDFC Balanced, ICICI Prudential Balanced Advantage, Tata Balanced and Canara Robeco Balanced fund. You can also use the Fund Selector tool on the Value Research website to choose a fund suitable to your risk profile.



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