- July 1, 2019
- Posted by: Vipul Shah
- Category: ULIPs
ICICI Prudential Elite Super ULIP Analysis and Review
Few days back I received a direct message from one of my follower in twitter to analyze ICICI Pru Elite Super ULIP policy as he was invested since 5 years hence the detailed analysis
ICICI Prudential Elite Super ULIP Policy has 7 funds for Equity which are as below
Exhibit 1.1
Below are the 5 year rolling returns of each fund
Before we begin let me explain you what are rolling returns and why 5 years rolling returns are applicable in ULIP policies.
You may invest in any given day in a year.
For Example : You invested on 01/01/2008 and I invest on 31/12/2008
However, during your investment, markets were at peak and when I invested, Lehman brothers collapsed took place and markets were way cheaper.
Your 2nd Premium will be on 01/01/2009 where as mine will be on 31/12/2009.
Different investors pay ULIP insurance premium at different dates, (this logic applies to your SIP or lumpsum investment in MF also), in such case annual returns doesn’t apply.
What rolling returns does is, If any investor had invested on any given day in a year and hold the investment for a period of 5 years, what could be the returns. This methodology takes away the date bias. Average returns are calculated for each 5 yr holdings period and then yearly CAGR returns are derived. It is called rolling returns and is the right way to derive at past returns.
The reason for 5 yr rolling returns is because, ULIP’s has a lock-in period of 5 years. you can stop paying premium and withdraw money based on terms and conditions mentioned in policy document.
Must Read : Why Do we Indians Prefer Fixed Deposit over Mutual Funds
5 yr Rolling Returns for ICICI Pru Elite Super Bluechip Fund
Exhibit 1.2
Exhibit 1.3
ICICI Pru Elite Super – Bluechip Fund generated a return of 11.55% compared to 12.39% and 13.34% of Nifty 50 TRI and Nifty 100 TRI that too with higher volatility. There were 187 iterations of 5 yr rolling returns which gave a +ve returns > 15%. If you think you as an investor got 11.55% then you are wrong because ULIP has many charges inbuilt in it.
Equity investing is a long term game with discipline, you were disciplined enough in ULIP because of 5 yrs lock-in, penalty charges for surrender during lock in period hence investor remains invested but when it comes to mutual fund or direct equity investment you are not discipline enough.
In ULIP’s you can’t see your portfolio on a daily basis hence you never realized the profit or losses but in equity as soon as you invest the very next day you check your portfolio, whether it is up or down it creates a challenge to remain invested because emotions are involved and final result is, you ruin your portfolio based on news.
The policy wordings has many charges such as policy administration charge, mortality charges, premium allocation charges and fund management charges. Fund management charges aren’t included in this calculation as those are similar to expense ratio in mutual funds.
Policy Administration charge is Rs 60 Per Month i.e 720 per year, If your investment is Rs 50,000 per year in ULIP then it translates to 1.44% per year, similarly mortality charges are 1.06% for a male aged 30 years opting for this policy. First 5 years premium allocation charges are 5%.
Total charges levied to you for first 5 years are 5% + 1.44% + 1.06% = 7.5% . Final returns in your hand would be 4.05%
Read : ICICI Prudential Bluechip Fund Quantitative Analysis and Review
Refer exhibit 1.4, 1.5, 1.6 for charges mentioned in policy document.
Exhibit 1.4
Exhibit 1.6
5 yr Rolling Returns for ICICI Pru Elite Super Maximiser V Fund
Exhibit 1.7
Exhibit 1.8
ICICI Pru Elite Super – Maximiser Fund generated a return of 13.61% compared to 13.51% and 14.63% of Nifty 50 TRI and Nifty 100 TRI that too with higher volatility.
There were 118 iterations of 5 yr rolling returns which gave a +ve returns > 15%, however the final retuns in hand of investor is a mere 6.11% again less than a 8% FD returns.
5 yr Rolling Returns for ICICI Pru Elite Super Multicap Fund
Exhibit 1.9
Exhibit 1.10
ICICI Pru Elite Super – Multicap Fund generated a return of 14.46%, isn’t that a good returns but when final returns are calculated what you get in hand is a mere 6.96%
5 yr Rolling Returns for ICICI Pru Elite Super Opportunities Fund
Exhibit 1.11
Exhibit 1.12
The last fund for our analysis is Opportunities Fund which is a multicap fund hence compared against Nifty 200 & Nifty 500 TRI. Returns are almost similar but the charges of 7.5% per year levied by ULIP destroys your wealth.
Hey!!! Hey!!! Hey!!! but what about Long Term Capital Gain Tax in Mutual Funds, lets calculate that
Below is the image for future value (FV Function) calculator in excel
The above image is calculation of Bluechip Fund we analyzed at the beginning, your 50K per year invested in ULIP with an appreciation 4.05% would be Rs 282065.88 after 5 years. Its a profit of Rs 32,065 ( 282,065 – 250,000)
The below image is a calculation of Nifty 50 because we compared Nifty 50 Index, your 50K per year invested in an Index fund value today would be Rs 359774 i.e a profit of Rs 109774.
LTCG is applicable after 1 Lakh profit therefore applicable tax amount Rs 9774 X 10% = 977.40
Final Returns from MF : 109774 – 977.40 = 108796.
Assume you utilized 1 Lakh LTCG benefit from other mutual funds or direct equities, then applicable tax would be Rs 109774 X 10% = 10977.40
Final returns after LTCG = Rs 98, 800 (109774 – 10977)
Mutual Fund comes with liquidity where as ULIP doesn’t
The commissions in such kind of policies are as high as 35% of your first premium, I know this because many insurance companies sales agent are behind me to sell ULIP policies. It is against my ethics so I don’t do it.
You were so generous that you paid 35% commissions to the sales agent from your hard earned money and got lesser returns then a mutual fund investor, it all happened because you had the expectation of 15% and 20% returns, sales agent knew your psychology and you were convinced.
So my friend, “Dikhave pe mat jao apni akal lagao”
One cent advice, either take it or leave it. Whether is ICICI Pru Elite Super ULIP Policy or any other do invest as, they invest in stock markets and levy hefty charges.
Go via mutual fund route which has the best transparency level with lowest charges. If your investment amount is more than Rs 25 lakhs, PMS is suggested. In today’s world where something is free then you are the product, it is advisable to hire a fee only financial planner who provides unbiased advised as he/she is not associated with any commission else be ready to see your wealth grow at a pace less then FD returns
Please help other investor by sharing the article so they don’t fall prey to such kind of ULIP Policies
Happy Investing !!!
About the Author :
Vipul is a long term investor, started first SIP in 2007, remain invested for 10 long year and purchased a home (without a home loan) in Mumbai from accumulated corpus of Mutual Funds. He is a IT Professional turned Salesman turned Fee Only Financial Planner and now help individuals to achieve their financial goals. He conducts free financial literacy seminar in Co-op Hsg Society as a part of his mission to educate 1 Cr Indians. He is a behavioral finance coach and a top writer in Quora. You can also schedule a free 30 mins call where he explains the behavioral aspect of investing and how to overcome them.
