
Insurance has always been confusing but thanks to technology, it has at lea...
For quite sometime now, I have admired the knowledge and acumen of Mr. Rajveer Chauhan, the insurance agent who has sold more than a dozen insurance policies to my parents and me. During a casual chat, he complained that he is unable to sell ULIP plans since the equity market is very uncertain. It came as a surprise because for one – the statement came from an experienced insurance advisor and two – the markets have always remained and will continue to be uncertain!
I was now looking forward to hearing his views and queries on ULIPs and markets. So, I participated in the conversation and started exchanging reasons for investing or not investing in unit-linked plans. He responded that his customers had a lot of questions and doubts and he was short of answers. He thought it was safe to wait for the market to undergo a correction and then he could peacefully resume to sell ULIPs again.
Usual Customer fears and questions are:
Even though ULIP is a simple product, it is not clearly and properly understood by most. Some of the features of ULIP:
Now, to answer the fears and the doubts mentioned by Rajveer, I provided him with some answers and clarifications:
ULIP is usually associated only with equity and debt is completely forgotten. ULIPs have both Equity and Debt fund Options. But whenever people talk of ULIP, they immediately associate it with equity market and the debt and money market fund is conveniently forgotten. So, if you feel that it is not the right time to invest in the equity market---don’t! Just invest in the debt fund but boycotting ULIPs only because the equity market is on a high, completely doesn’t make sense.
Equity funds have a maximum equity exposure of 100% and minimum exposure of 40-60%. Thus in a bearish market, when the fund managers believe that the market will fall and not rise further, they keep only the minimum exposure in equity and park the rest of the funds in debt or money market fund where the market correction will not affect the NAV so heavily. Only when the market is bullish again and they believe that they will profit from the equity market rise, they slowly and steadily move the funds out of debt and money market funds to equity products.
Concept of switching- People ask for switches only while purchasing a policy and seldom exercise the option during the entire tenure. The option of Switching can be exercised very effectively.
- You can invest in debt fund if you are bearish about the equity market
- And then switch to equity fund when you consider the market to be bullish again
Anytime is a good time to invest as long as your goals are set right and you know why and where you are investing. Rajveer seemed convinced with the above explanations but many of us still hold some apprehension against the equity markets. The only way to get over this fear is by getting our basics correct about the equity markets and its functioning.
Leave a Comment