Insurance Plans for TAX Savings

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Mar 24

Insurance Plans for TAX Savings

Kalyani Narayanan, CEO and Principal Officer says

Today, many companies are offering ULIP policies with 'Highest NAV Guaranteed' option.

Many are asking for various clarifications on this. So, I thought of writing about it this month.

How do insurance companies manage the funds so that they can GUARANTEE you highest NAV? Please understand what they guarantee you is 'Highest NAV' not 'Highest Sensex'. It is like capital guarantee type of investment where, at worst, your capital is guaranteed.

How do Highest NAV Guarantee Policies Work?

These plans use investment strategies like Dynamic Hedging and Constant Proportion Portfolio Insurance (CPPI), which are advanced strategies used in derivatives. All of us know that investing in equities (ie stock market) is risky whereas investing in debt funds (like GOI bonds) is safe. We also know that the riskier it is, the more rewarding, the safer it is, the less rewarding.

Let us assume that we invest in one such Highest NAV Guarantee fund, Rs. 10. In the beginning, let us say that the entire amount is invested in equity. Assuming the market moves up and so NAV goes up to Rs 15 in one year. The insurance company has to pay you back at minimum Rs 15 regardless of market conditions. In order to make this possible, the company would take out certain amount from equity market and invest in debt funds which would fetch at least Rs. 15 in the next 6 years. So, the company will migrate Rs. 10 (out of Rs. 15). So, they have only Rs. 5 invested in equity fund now. Even if the market goes down, your Rs. 15 is guaranteed. If the market goes up further, say Rs. 17, the company would pull out enough money from equity into debt so that Rs. 17 would be payable upon maturity. If the market goes down, and your NAV comes to Rs. 12, then your Rs. 17 is still guaranteed because of the money already invested in debt.

I have put together all the companies that offer invest options with Highest NAV guarantee. You can access it by CLICKING HERE.

Please keep in mind the following if you would like to invest in anyone of these:

Very ideal for you if you are NOT interested in following the stock market and worry about what happened to your investment.
You are guaranteed that not only the money you paid is safe, you can also expect to make about 8 - 12% return on your investment.
Considering the returns are TAX FREE, it is NOT a bad option.
You need to stay invested for the entire 10 years(though payment term is only 5 years) in order for you to get the Highest NAV. If you withdraw in the middle, then you would get the market NAV at that time (which may or may not be the highest)
Some companies also give you bonus for staying invested for 10 years, it would be good to take advantage of that.
In order for you to enjoy the Highest NAV guarantee, there is an additional fee charged if you choose this option.

Interested? Write me back. I would love to serve you and get your business.

kalyani@easyinsuranceindia.com

www.easyinsuranceindia.com