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Should I continue my low cost ULIP?

Even low cost ULIPs deduct mortality charges before investing your premium

I have Kotak Super advantage ULIP since 6 years with Kotak Classic Opportunity fund. Returns on this fund for past 5 years, 3 years and 1 year are 12.5 , 17.7 and 0.7 per cent respectively. If I continue to hold this till maturity I'll get double the amount of first year premium in addition to my fund value. Also additional fund value will be added to my total investment at maturity. There are monthly charges on maintaining this ULIP which adds up to almost 4 percent of premium amount. After reading so many posts on this forum I am confused should I continue this ULIP till maturity or should I move to a mutual fund instead?
- Ankur

Kotak Super Advantage ULIP has a few advantages over other ULIPs. In this plan there are no premium allocation charges applicable from second year onwards. There are two guaranteed additions to this plan which are:

  1. Fixed advantage: A percentage of your first year's premium depending on your policy term. In your case, since the policy term is 20 years, then the fixed addition will be 200 percent of your first year's premium.
  2. Dynamic advantage: 3 percent of the average fund value of the last three policy years.

But these do not materially add to your returns and therefore this is not a recommended product. There is mortality charge which will be deducted every year by way of canceling the units to give you a life cover. However the life cover may not be adequate to take care of your dependants financial needs in case if something happens to you. Though ULIPs are market linked, they lack the transparency of open end mutual funds, on NAVs portfolios and fund manager strategies. Though mutual funds too have exit load, these costs are much lower than unit linked plans and are restricted to 1 to 2 years in most equity funds.

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. And invest in equity mutual funds to achieve long-term financial goals of five years and above. If you are a newcomer to the stock market, choose a top-rated balanced scheme and start investing every month via a Systematic Investment Plan (SIP). If you are familiar with the stock market, you can invest in a diversified equity scheme.

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