Stocks are too volatile. Should I invest in ULIPs? | india | Hindustan Times
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Stocks are too volatile. Should I invest in ULIPs?

india Updated: Sep 01, 2009 23:28 IST
Sandeep Singh

Name: Jayant Roy, 55
Profession: Senior manager at a private company
Income: Rs 4.5 lakh p.a.
Aspiration: To invest in a safe instrument that can give me higher returns than bank fixed deposits.

Jayant Roy’s investment philosophy can be described in two words: safety first.

Roy’s wife Uma is a homemaker and his salary is his family’s only source of income. After paying the monthly installment on his home loan and meeting household expenses, he doesn’t have much money left over.

“But I still try to save some part of my income in recurring bank deposits,” he says.

He feels investments in shares and mutual funds are too risky for someone with his profile, especially after the downturn-induced volatility in the stock markets.

The bulk of Roy’s savings go towards paying for his life insurance policies. Now, his investment agent is pushing him to buy a Unit Linked Insurance Policy (ULIP).

“My son Jishnu is in school and I would like to invest some money to meet the expenditure on his higher education in a few years,” he says.

“Should I invest in ULIP and if yes, which ones?” he asks.

Our take
Considering your age, your existing insurance policies and the time horizon of your investment, I won’t recommend a unit-linked insurance plan. ULIP investments will serve you better only if you have a long-term investment horizon of more than 10 years. This is because the initial costs are very high in a ULIP investment.

Also, ULIPS will offer you a lower life cover and at your age, the premium per lakh of cover will be high.

An equity MF will be a better investment option and they can serve your investment purpose with an investment horizon of three to five years.

For less risk, you can invest in balanced mutual fund schemes, where up to 65 per cent of your investment goes into equities and the remaining into debt products.

I would further like to suggest that individuals must seek the advice of an independent financial planner before going by the word of your agent.

Advice by Sandeep Singh