Many investors are being presented with attractive presentations promising 14% returns through Unit Linked Insurance Plans (ULIPs). However, Abhishek Kumar, a Sebi-registered investment adviser and the founder of Sahaj Money, warns that these projections are misleading. According to Kumar, the glossy forecasts conceal crucial details, leading to potential buyer deception.
Kumar described this practice as “textbook mis-selling disguised in a spreadsheet,” emphasizing that the alluring projections fail to account for significant factors. He highlighted that ULIP sellers typically showcase a clean chart suggesting rapid growth of the entire premium. Nonetheless, this overlooks various charges associated with each policy, such as premium allocation costs, mortality charges for life cover, fund management fees, and administration charges, which gradually diminish the invested amount.
In reality, Kumar explained that when factoring in these deductions, the actual returns drop to approximately 11%, creating an annual gap of nearly 3%. Over extended durations like 15 years, this difference accumulates significantly, representing tangible financial implications rather than minor discrepancies.
Moreover, Kumar addressed the issue of tax benefits often advertised with ULIPs. While many pitches promote “non-taxable returns” to entice investors, Kumar clarified that this claim does not apply to policies with high annual premiums exceeding Rs 2.5 lakh. Such policies are subject to full taxation as capital gains, contradicting the alleged tax-free maturity benefit.
Furthermore, Kumar highlighted a violation of regulatory guidelines in the ULIP illustrations. He pointed out that IRDAI rules restrict insurers to projecting only 4% and 8% return scenarios officially, making a 14% projection a clear breach. Kumar suggested that this inflated number aims to enhance the product’s attractiveness artificially, banking on the assumption that consumers trust seemingly “official” figures without scrutiny.
In light of the aggressive marketing surrounding ULIPs, experts advocate for thorough comprehension of the genuine costs, tax implications, and realistic return expectations before committing to long-term financial instruments. Kumar’s caution underscores the necessity for enhanced transparency and prudent decision-making when navigating complex financial products.