Case of a Carpenter in mid thirties

This gentlemen, coming from rural Gujarat ,settled down in Ahmedabad a few years ago. He came in touch with me in 2004. His income ranged between 70000 to 90000 rupees per year and was growing. He consulted me and told that he wanted better returns and had an idea
that stock markets were doing well. I had no difficulty convincing him about Unit Linked Endowment Plan . The premium fixed was Rs 2500/- and life risk given was Rs 200000/-. The plan commenced in Jan 2005. His life risk cover charges have been around Rs65/- per month. He topped up Rs 15000/- in the March 2007 and has given ten quarterly premiums so far. His fund value stands at Rs 41900/- on 27 Sep 07 and has given him returns of above 35% on net investment.

Does it not show that India has come of age and people from humble rural back grounds and artisans in traditional ways have started participating in modern economy through ULIPs.

Hari Om

Krishna Kumar Khandelwal

Young Star Plan for a term of 25 yrs and held by an NRI professional

Dear Policy Holders,

This is about Young Star Plan for a term of 25 yrs and held by an NRI professional gentlemen working in USA for the benefit of his daughter.The policy was issued in April 05 and Rs.25000/- premium is annually payable. The risk cover is Rs 5 lacs. The three instalments of premium paid add up to Rs.75000/- out which initial charges of Rs. 13500/- were deducted from first two premiums and the net investment made totalled Rs.61250/- and the present value of fund as on 10 Aug 07 stands at Rs.89 K ( Growth Fund Units Held :1454) and works out to annual return of 41% after accounting for the risk cover charges at around Rs.1200/- annually.

The policy holder has the following options available to him:

a) He can top up amounts and 99% will be invested in the fund/s of his choice.
b) He can withdraw money without any deduction/charge to the extent
of Rs.74000/- and the policy will remain in force.
c) He can go on premium holiday and policy will remain in force.
d) He can surrender the policy and full value of units standing at Rs. 89000/- will be paid out to him.

The returns on this remain tax exempted under section 10 (10) D. The contributions are covered U/S 80C qualifying for the income tax rebate.

In case of his unfortunate death , his wife/child will receive the sum assured of Rs. 5 lacs just then and the future premium till the policy maturity date will be paid by the company itself and the total fund value including returns would be paid to the beneficiary at the end of the term. This duel advantage is the core of the this children oriented plan.

Hari Om

Krishna Kumar Khandelwal

HDFC SINGLE PREMIUM UNIT LINKED PENSION PLAN

Friends,

The above plan of HDFC STANDARD LIFE INSURANCE CO LTD has many features that are unique and very useful and cost saving. Under this plan, the charges are minimal and returns are quite rewarding, please see the charge structure and features as given below:

a) This may be taken with minimum contribution of Rs.25000/- and amounts larger than this, initial charges are 6% of premium and are reduced for premiums over 200000/- and further reduced for premiums over 500000/-.

b)You do not have to commit for paying future premiums,however,you may top up amounts (minimum at one time Rs 5000/-) any number of times at your will and be invested in funds of your choice to the extent of 97.5% in the first two years and later to the extent of 99%.

c) You will have the option to switch between the six funds with varying combination of equity and debt for 24 times in a year without any charges.

d) You will be allowed to surrender the policy after three years and obtain your fund value including returns without any charges or deduction (no TDS deduction either).

e) After the policy has run for the full term , you will be entitled to receive pension depending on the then prevailing rate of interest and if you choose you will be paid one third of the fund value in cash without any charge and without attracting any tax. The mode, period and pension for spouse after demise are all your choices to be made not now but at the time of commencement of pension.

f) Nomination facility is available as in case of any other policy.

g) This can be taken for a minimum term of five years or maximum term of 30 years but the pension receiving age should be 50 years and this factor has to be kept in mind while choosing the policy term.

You are advised to refer to companies brochures too before taking a final decision to go for this policy.

The above may seem to be theoretical discussion. I am giving you the case histories and actual performance of some policies under this plan taken at different times since 2004 by different class of people for better understanding:

1- Policy no 1000xxx3 dated Feb 04 initial payment Rs 25000/- less initial charge Rs.1500/- Net Investment 23500/- , present fund value on 04.05.07 Rs 38 K (units under Equity Managed Fund) yielding flat return of over 19% per annam - policy holder is a middle aged lady without any regular income.

2- Policy no 1000xxx1 dated Feb .04 initial payment Rs 25000/- less initial charge 1500/- , net investment 23500/-, present value on 04.05.07 37 K (units held under growth plan) yielding flat return of over 18% per annum - policy holder is a young married women with two children without any regular income.

3- Policy no 1000xxx7 dated Aug.04, initial payment Rs 25000/-, initial deduction 1500/-, net invested Rs23500/- in Balanced Fund, present value as on 04.05.07 Rs 42 K yielding flat return of above 28% per annum - policy holder is a young executive with a investment/broking firm in Lucknow, he preferred it for the simplicity and growth prospects.

4- Policy no 102xxx01 dated May 05 , initial payment Rs 25000/- , initial deduction 1500/-, net invested in Growth Plan , present value as on 04.05.07 Rs48 K yielding flat return of over 52% per annum - the policy holder is near his retirement and works with a Govt. corporation wanted parking place for funds and some pension inflow after about five years of growth taking advantage of booming markets, needless to say his strategy paid off and expertise of HDFC SLIC fund management team delivered very well.

5 - Policy no 103xxx70 dated Aug 05 , initial payment Rs25000/ , initial deduction 1500/-, net invested in Balanced Fund, present value as on 04.05.07 Rs 32 K yielding flat return of over 20% per annum - policy holder is retired Doctor and had some free funds to invest. He would not be waiting until the policy matures and would surrender and withdraw his fund value any time when needed as the lock in period of six months has passed, no deductions would be made and no TDS will be attracted.

6 - Policy no 10370xxx dated 09.09.07 , initial payment Rs25000/- and top up of Rs 25000/- within a few weeks, initial deduction 1500/- and deduction on top up amount 250/-, net invested 48250/- in Balanced fund and switched to Defensive Fund later on, the present value as on 04.05.07 stands at Rs 56 K yielding flat return of roughly 10% per annum - policyholder a middle aged housewife without regular income, but has conservative out look about money management, she would want the commencement of pension after ten years.

7 - Policy no 103xxx76 dated Aug 06 , initial investment Rs25000/- , initial deduction 1500/- , net invested 23500/- in defensive fund, present value as on 04.05.07 Rs26 K yielding a flat return of about 14% per annum - policy holder is of ripe age now and wanted some place for safe keeping of funds with moderate growth prospects and safety and the goal is fulfilled, he has option to withdraw funds by surrender of policy after lock in period of three years or go for pension on expiry of five years.

8 - Policy no 1079xxx5 dated Dec 06 , initial payment Rs 25000/- , initial deduction 1500/-, net investment 23500/- in Balanced Fund, present value as on 04.05.07 Rs 23 K and the yield has so far been negative return of about two per cent - policy holder is a house wife without regular income and the purpose of purchasing the policy is to top up monies that will be received from husband from time to time, her choice is Balanced Fund as she was explained that over long period of time and with investment from time to time the Balanced Fund would be giving better returns along with needed safety.

9 - Policy no 109xxxxx dated Mar 07 , initial payment Rs 25000/- , initial deduction 1500/- , net invested 23500/- in Growth Fund, present value as on 04.05.07 stands at 26 K yielding a return of over 60% per annum -policy holder is a Muslim businessmen who wanted the funds to meet the obligations later in life like for children education etc., he wants to top up funds every year of about one lac as and when possible to spare from business, would keep funds only in Growth Fund as the interest earning is not preferred in Islam. he has not opted for risk cover policy also due to such considerations, since policy may be surrendered any time after three years without penalty he sees no problem in meeting his future needs.

There many policies which have been given to people who have topped up large monies and have had satisfying returns but the same have not been mentioned here as the top ups have been many and varied. Since on top up only a nominal deduction of 1% (after policy has matured for two years) is attracted, the Unit Linked Plans of HDFC SLIC have a tremendous edge over the Mutual Funds , along with the free switching for 24 times in a year between six funds the advantage over MFs becomes so pronounced as to make Mutual Fund investment risky and costly. Further the dividend distribution tax is not applicable on Pension Plans and the Endowment Plans of the insurance companies the advantage is even more.

You are welcome to seek clarification regarding any aspect that may crop up in your mind.

Hari Om

Krishna Kumar Khandelwal

Case of a Reluctant Policy Holder

This gentleman, now in his middle years, holds the very first Unit Linked Policy sold by me after it was introduced in Jan 2004. His policy no.1XXX030X issued on 29 Mar 04 is called Unit Linked Endowment Plan. When contacted, this man was all sold to LIC's strength and pedigree and was reluctant to look at any other company’s plans. On great persuasion and convincing that, the HDFC Std Life Ins Co Ltd is no ordinary company, he agreed to go for a policy with it. HDFC SLIC is in fact a joint venture between two conservative giants i.e. Standard Life Insurance Co of Europe with 170 year standing and HDFC group which is held in high esteem not only in India but the world over where the FIIs have taken up stakes to fullest extent possible under the rules. It may surprise you but the Housing Development and Finance Corp. Ltd, the parent company, has annual profits of about Rs.1500 crs per year and may fulfill funding requirements of HDFC SLIC as its business grows.

The policyholder works with a private organisation and has many commitments in respect of savings qualifying for rebate under section 80 C. This policy has risk cover of just one lac rupees and he is charged about Rs 350/- per year as risk cover charges, which are adjusted by cancellation of units on monthly basis. The annual premium amount of Rs 10000/ is paid by him in quarterly installments of Rs. 2500/- .He has so far paid 13 such installments of premiums totaling Rs.32500/-. The amount that has gone in to investment in net Rs.26975/- as on first two years premiums 27% was deducted as companies charges amounting to Rs.5400/- and further premiums were invested to the extent of 99%. He holds 361 units of balanced fund and 412 units of growth fund as on 13.04.07 and the fund value stands at Rs.37151/-. The returns have been of the order of 24% per annum. The policy was sold to him for the sake of higher returns/growth as he had no further requirement for risk cover otherwise.

He has following options with him under provisions of policy:

1. He may withdraw money out of the policy fund at any time leaving just a balance of Rs.10000/- , without any deduction and without any tax incidence, in one or more installments. No interest is payable on the amount withdrawn and there would not be any commitment to pay it back. So long as the minimum policy fund is maintained at more than Rs.10000/- the policy will remain in force and the risk cover continues.

2. He has option of topping up monies, which will go straight in to investment in the fund/s of his choice in the desired proportion to the extent of 99%. These topped amounts qualify under section 80 C for tax rebate.

3.He will not be charged any tax on the gains under the policy at any time by virtue of section 10(10) D which says that if the total premium paid in a year is less than 20% of the sum assured no tax would payable on returns. Therefore, he will have to make sure that during the year the amounts topped up plus the regular premiums are not in excess of 20% of risk cover i.e. the sum assured.

4. He has the option of going on premium holiday and later resuming the premium payments.

5. Common to all unit linked plans, he can switch between the funds without attracting charges for twenty four times in a year. The fund value is after the fund management charges of 0.80%, the lowest in industry.

6. Needles to say that he can surrender the policy and get his full fund value without any deduction as three years have passed.I do hope that you have good idea how the policy works.

Hari Om

Krishna Kumar Khandelwal

P.S. Option to switch funds was excercised just once since beginning.
2. Presently the company give risk cover of up to 40 times of the annual premium. The option to take the Critical Illness cover and accident risk cover for an equivalent amount is also there.

Case of a middle aged company executive at middle rung

The gentlemen was looking for some investment with a view to getting tax benefit under provision of exclusive pension saving . He was tied up with many policies issued by LIC for different sum assured and some were money back policies. I explained to him that money back policies are never meant for those in service who have to save for long term over long years. After enough life risk cover has been taken, any further risk cover policy is waste of money on risk cover charges. Since he was looking for pension plan himself, the matter was simple enough. He was already quite satisfied with the credentials of HDFC SLIC, so I had only to explain him what he would get in ULPP againstthe traditional plan. I explained to him that in traditional plans, the funds remain entirely under control of the insurance company and the same may never be used for investing in equity even if the market iscrying for rewarding you and is at a very comfortable level from the angle of risk / reward. The provision of free switching is itself very valuable from the angle of cost saving and opportunity grabbing.

After deliberations, he decided to go for ULPP with Rs. 10000/- annual premium payable half-yearly for 25 years. In the month of March 2004 when the policy was taken, markets were already high after two-year Bull Run. Although optimistic, I did not want him to put money in growth fund initially and suggested for balanced fund. I told him when ever in doubt or whenever you do not want to risk by switching frequently but wish to stay for long term, the balanced fund is the best thing. How ever during the year 2005 on a suitable date the switching to growth was done. Now, on 13th April 07 he holds 327 balanced fund units and 542 growth fund units and his fund value stands at Rs.44000/- while he has paid seven installments of Rs 5000/- so far. Adjusting for the initial charges his growth has been 18% p.a. (compounded basis).

His tax saving and other option are the same as for any other ULPP holders and detailed in 'Case of a Lady Teacher’. Don’t you think this is a dream like growth compared to traditional plans and we aretalking of a three-year long period not a flash in pan? We will track the progress later on too and for reference, the policy no. is 1XXX684X issued on 13 Mar 04.

Krishna Kumar Khandelwal

The case of a Lady Teacher - Born in March 1973

Brief introduction: This lady married in the year 2001, joined as a teacher in school at a monthly salary of 6000/- per month in the year 2002. She contacted me in the month of March 2004 and wanted a suitable way to have pension income by the age of 50. By this time the HDFC Std Life Ins. Co. had introduced Unit Linked pension plans. Without a hitch I suggested her to go for the regular premium ULPP . She had some fear about the performance of the stock related investment but upon being told that it is as safe as any other instrument she went for it. The product feature have been given here under:

Policy No.10005XXX Plan Start Date: 23 Mar 04
Policy Term : 20 yrs
Mode: Annual Premium Amt : 10000/- per year.
Fund allocation Rate for the first two years 78% and thereafter 99%
Initial choice of Fund : 100% in Balanced Fund
Premiums paid till 23 Mar 07 - Three
Present Holding of Units: 336 Units in Balanced Fund and 841 Units in Defensive Fund as on 23 Mar 07
Total Fund Value as on 23 Mar 07 : Rs.32370/-(Post Charges)

Annualised Return on investment works out to 14% per annum for the last three years.

Her choices in this plan are:

• She can Top-Up any amount besides paying premium, any number of times but each time the amount of top-up has to be more than Rs.5000/-
• She may choose to go on premium holiday and the policy would remain in force.
• She may surrender the policy any time now after passage of three year period and receive full fund value without any deduction.
• She has exercised switching between the funds for the sake of safety and did not have to pay any thing. Her present fund choice is tilted towards security.In the month of April 07 she will be having a feel of the market after company results are out and take a suitable action of switching in to Equity Manged Fund or Growth Fund.
• She has the freedom to choose one out of the many options for receiving the pension when the plan matures including the option of receiving 33% of the corpus in cash without inviting any tax incidence.
• She has the option of nomination change at will.
• She is getting the benefit of section 80C on her premium payments.
• She has option of switching between the funds for twenty four times in a year without any charges.
• The fund value at maturity will work to Rs. 10 lac at the rate of return so far achieved i.e. 14% and would translate in to monthly pension of 8000/- to 9000/- per month depending on the long term yield on govt. paper. Her fund value would paid to nominee after her death , or else the pension may continue to be received by her husband , if she so chooses.

HDFC SLIC has performed most satisfactorily as far as the fund management goes. Their performance has been best in the industry.

This is the practical out come of a wise decision and had a traditional plan been chosen the returns would have been a meagre 5-6%. You will be given glimpse in to many more plans under unit linked schemes after obtaining no objection from the policy holder concerned.

Hari Om

Krishna Kumar Khandelwal

Achieve the objectives of tax saving, risk cover, liquidity and most of all higher tax free returns

This is a reproduction of letter to one of the policy holder aged 28 years for you to get an idea of how the Unit Link Policies practically work for achieving the objectives of tax saving, risk cover, liquidity and most of all higher tax free returns... You may compare these with any other instrument that you may be having... Please come forward for further queries that you may have.

Ref.Your Policy No.xxxxxx... 0f 04/05/06 under Unit Linked Endowment Plan with life risk cover of INR 5.00 Lacs along with accident rider, half yearly premium payable is INR 12500/-

Dear Policy Holder,

I am pleased that you decided to go for this policy. You have had an annualised return of over 25% p.a.on your funds invested (precharges) so far and the next premium falls due on 04/05/07.You presently hold 257 Units under Balanced Fund and 362 Units under defensive Fund.

Your policy allows you to pay extra premiums called top ups and these funds would also gain in the same fashion as explained earlier also qualifying for tax saving under section 80 CC , all without attracting tax on returns as well . You should however make sure that the top up amount together with annual premium does not exceed 20% of the risk cover in a year in accordance with the provision under section 10(10)D which says that the returns will not attract tax if the total premium paid in a year is up to 20% of the risk cover.

In light of above, I suggest that you must pay in extra some of up to INR 75000/- until 31 March 07 in accordance with availability of funds in your hands. As your policy allows you to withdraw moneys once or more times without restriction, you would not face liquidity problem. Further more your funds are invested to the extent of 99% as against mutual fund investment attracting entry load of 2.5% or more. You are further advantaged because of the switching option without cost or delay, twenty four times in a year. Discretely used, this facility may raise your returns handsomely during the year as well as in the long run. My clients have been able to get up to 60% returns during last one year.

For your information, a risk cover charge roughly @ Rs 16/- per Lac per month is being deducted presently.

I call upon you to consider buying more such policies, as your income grows, for your self and for the members in your family as nothing else is so complete and so rewarding a financial instrument in our country presently. It takes care of all your needs in short run as well as in long run with the life risk cover and tax shelter and perfect liquidity. You would be glad to know that HDFC SLIC has been out beating the index by over 10% p.a .HDFC SLIC has been rated as best fund manager amongst the industry players.

I would be glad to provide further clarifications required.

Wish you a very Happy New Year.

Hari Om

p.s. Kindly visit www.panchtattvainsurance.blogspot.com regularly for guidance regarding switching time and strategy.

Krishna Kumar Khandelwal
Certified Financial Consultant: HDFC SLIC