Even low cost ULIPs deduct mortality charges before investing your premium
20-Feb-2017 •Research Desk
I have purchased HDFC click to invest in October 2015 and paid ₹12,500 quarterly for three quarters. However I feel it is not performing. There are no surrender charges however if I do stop premium payments, my fund will be moved to discontinued fund and simple interest will be provided after 5 years are completed. Should I surrender the same?
- Kunal Nayak
HDFC Click 2 Invest is a low cost ULIP which just charges for mortality risk and fund management, at 1.35 per cent. It invests the rest of the premium. This makes it a very cost effective ULIP. But apart from this, it has all other disadvantages of a ULIP, such as difficulty if comparing or benchmarking performance, lack of liquidity and so on. We don't recommend ULIPs as a rule because it is not advisable to mix your insurance and investments. MFs score over ULIPs on many factors. 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.
Since you haven't completed 5 years, you are right in your view that if you surrender the plan now then the fund value will move to discontinued fund. This will be paid out to you after the 5 year lock-in and after deducting discontinued charges applicable on this plan. The fund value will depend on the NAV of the fund as on the date of surrender.
Though you will make losses upon surrender, it is not wise to continue investing. You can surrender the policy and take the fund value after the lock in period. But invest the future premiums in a investment which gives better returns.
We always recommend pure term insurance plans to buy an adequate life insurance cover. And for investments, you should choose equity mutual funds for long-term goals of five years and above.