India has the largest amount of millennial population – people in the age group of 18-35 years – which is projected to comprise almost 2/3rd of our total population by 2021. This is the generation that has the advantages of having a good education, ambition and successful careers. But they are also the people who are idealistic and believe in following their passions with their unconventional thinking. Unlike previous generations in our country, they are in favour of concepts such as job-hopping, gender equality, travel, shopping, and partying. They are the “we want it, and we want it now” generation.
Therefore, when it comes to investment options for millennial, the industry will need to spice things up. Millennials have different aspirations to their predecessors, and that has inevitably affected the way they spend money and manage finances.
While ULIPs are an excellent choice of investment that has been around for quite a while, they are still considered expensive – which may not go down well with the value-seeking youth of today.
Enter NULIPs – or new age ULIPs, also referred to as 4G ULIPs – that offer more flexibility than traditional ULIPs, and at a lesser cost. In fact, the exemption of long-term capital gains (LTCG) tax in the Union Budget this year has made ULIPs one of the favoured investment instruments amongst people looking to invest. There are hardly any premium allocation charges while the fund management charge ranges from 1.35% for pure equity funds to 0.95% for debt funds. They also have additional features like zero policy admin charge, zero premium allocation charge & mortality cost of the life cover also gets returned to you on maturity.
How to invest in a 4G ULIP?
Since ULIPs are a long-term investment, it is an ideal investment for people in the age group of 25-45 years and can be bought online.
If you’ve decided to go ahead with a 4G ULIP plan, you should know there are two ways to invest – annual premiums and systematic investment plans.
4G ULIPs work on the concept of rupee cost averaging wherein the cost at which you buy units of a fund is averaged. The only concept to follow is “buy-low and sell-high”, which implies that you should buy more units when the markets are down and fewer units when the markets are up.
Annual premiums – The only fall back with the annual premium paying option is that one might not be able to take advantage when the market is low as the payment is made in a lumpsum amount.
Giving it an SIP edge with a monthly premium payment mode of investment, the market fluctuations will get averaged out and is often considered an intelligent option for people who cannot invest a lump sum amount.
The Bottom Line
The monthly payment mode trumps the annual payment mode because:
# Convenience of payments: Paying a premium is made simple with the option of investing in instalments. There is no need to pay in lump sum as you have the choice of paying premium monthly, quarterly, half yearly and yearly.
# Evade market fluctuations: Due to regular monthly payments towards your ULIP, the market’s ups and downs will get averaged out, and you don’t end up paying large sums of money in one go in a scenario when the markets are high.
4G ULIPs or NULIPs are considered to be the best investment option in the current market condition. Since ULIPs allow investors to shift between equities and debt (irrespective of Annual premiums or SIP), even during the first 5 years of compulsory lock-in, you are advised to use this benefit to your advantage by switching funds based on the market scenario.
With their low-risk and high-return giving characteristics and easy switch options, NULIPs are the solution to investors who worry about the volatility of the market and want to hedge investments. They are an ideal investment solution for the new generation of investors in the country to achieve their long-term financial goals.
Amongst the numerous options available in the market, the best ones are – The GOAL ASSURE plan of Bajaj Allianz Life Insurance which is best known for its service under which it ‘returns’ the mortality charges at maturity. Other options like Click2Invest from HDFC Life, Wealth Plus from Edelweiss Tokio Life are also available. There is a new entrant in the market – Canara HSBC OBC – which has come up with Invest 4G plan. It has a choice of investing in 7 different funds and 4 portfolio strategies with loyalty additions and wealth boosters as additional allocations to boost your savings.
(By Santosh Agarwal, Associate Director and Cluster Head-Life Insurance, Policybazaar.com)