In June 2007, I invested in a Unit Linked Insurance Plan (Ulip). Can you explain what is the difference between Ulip and ELSS? Was Ulip a good decision? Also, I want to start investing in MFs. I can start with Rs 4,000 per month and can stay invested for three years, but my risk appetite is very low. Please suggest a few options, where I can earn moderately with lower risk.
-Rajan Sood
First, do not confuse insurance and investments. These are two different products that serve different purposes. While Ulip is a mix of life insurance and investment offered by life insurance companies, ELSS is a type of MF offered by MF companies. Both are eligible investments under Section 80C of the Income Tax Act and provide tax deduction on investment of up to Rs 1 lakh.
If, at the time of buying the Ulip, you perceived it to be an investment product, then you made the wrong choice. Ulips are not even smart insurance products. From the perspective of returns, they are not the best of choices. If you need life insurance cover, we suggest term insurance. It is the cheapest form and caters to insurance needs in a better way than Ulips. If you plan to exit Ulips before the completion of five years, then you are liable to pay tax on all the deductions claimed against the premium paid till the year of termination. You would also have to pay a high surrender charge.
| Ulip | ELSS | |
| Purpose | Hybrid Product (insurance + investment) | Equity Fund (investment) |
| Expenses | High charges initially (morality, fund management, policy admin charges) | Capped at 2.5 per cent yearly |
| Risk | Invests in market-linked instruments | Invests 80 per cent in domestic stocks |
| Equity Allocation | Different options available | Minimum 80 per cent |
| Liquidity | High surrender charges for 3 years (5 years for products filed after September 30, 2009) | Three years (for each SIP) |
Since you have a low risk appetite and can stay invested only for three years, consider investing in debt funds such as Fortis Flexi Debt or Canara Robeco Income. However, if you can take some risk on equity investments and are prepared to hold your investments for a longer tenure, consider investing a portion of your corpus in balanced funds such as HDFC Prudence, DSPBR Balanced or Tata Balanced.
Is Kotak Opportunities a good fund to invest in? If not, please suggest some where I could do so for the long term.
-Sarang Acharya
Kotak Opportunities is currently a four-star rated diversified equity fund. The fund is aggressive compared to others.
However, it has not been a consistent performer. Hold it only if comfortable with relatively higher risk. Also, do not let a fund such as this form more than 20 percent of your portfolio.
If you wish to switch to another pure diversified fund, then you may consider HDFC Top 200, DSPBR Top 100 Equity or Magnum Contra.
|
Return (%) | ||||
| 2009 | 2008 | 2007 | 2006 | |
| Kotak Opportunities | 80.13 | -56.77 | 91.01 | 38.70 |
| Category Average | 84.35 | -55.15 | 59.45 | 34.73 |
Value Research
