ULIP Review: Kotak Single Invest Advantage joins unit-linked rushKotak Single Invest Advantage, as the name suggests, is a single premium Unit Linked Life Insurance Policy (ULIP). The sum assured, however, is 10 times the single premium, thereby meeting the condition for tax deduction under Section 80C and exemption of maturity proceeds under Section 10(10)(D). The fact that it is a single premium also takes away the worry and hassle of forgetting or missing future premiums and losing out on the policy. The minimum premium is Rs 3 lakh, making it more a ‘class’ than a ‘mass’ product.

Policy Term Minimum Entry Age Maximum Entry Age
10 years 3 43
15 years 8 45

The policy also offers loyalty additions of 4% and 5% of fund value respectively for premium terms of 10 and 15 years. These are 5% and 6% if your single premium is Rs 7 lakh and above.

Strategies

Self-managed: You chose among the four ULIP funds on offer and can switch between them.

Age-based: Your money is split between an equity fund inside the ULIP and a debt fund considering your age and your risk appetite. Your risk appetite can be set by choosing between three options – aggressive, moderate and conservative.

Systematic Switching Strategy: This is akin to a Systematic Transfer Plan (STP). Your money is initially invested in a money market ULIP fund and moved to one of two equity funds over the course of one year.

Withdrawals

As with all ULIPs, your money is locked in for the first five years. Surrendering your policy within this period will incur discontinuance charges and still keep your money locked up in the discontinued policy fund earning 4% per year. You can make partial withdrawals from the sixth year. However, they cannot reduce the policy value below half the value of the single premium you have paid.

On maturity, at the end of the ULIP’s term of 10 or 15 years, you can get the proceeds of the policy as a lump sum or in instalments over a period of five years. You can also split your proceeds 50-50 between both options. However, with regard to the 5-year phased withdrawal option, the policy could do better. Bajaj Allianz, for example, offers a 0.5% bonus if you opt for a similar phased withdrawal under its Goal Assure.

You can also opt for the Systematic Exit Strategy (SES) akin to a mutual fund Systematic Withdrawal Plan (SWP). This strategy will gradually move your money from equity funds to the ULIP’s money market fund, one year prior to maturity.

Charges

On the charges front, the ULIP comes out somewhere in the middle. It has waived the policy administration charge but charges a hefty premium allocation charge of 2-3%. It also has standard, non-refundable mortality charges (unlike Bajaj Allianz Goal Assure which refunds these charges after a defined period).

Premium Allocation Charge 3% for premium below Rs 7 lakh, 2% otherwise
Policy Administration Charge None
Fund Management Charge Ranges from 0.6% for the money market fund to 1.35% for the ULIP’s equity funds
Mortality Charge Roughly 0.1% of sum at risk for a 30 year old. These change with age. Sum at risk = Death Benefit – Fund Value
Discontinuance Charge Lower of 1% of fund value, single premium and

  1. Rs 6,000 in first year
  2. Rs 5,000 in second year
  3. Rs 4,000 in third year
  4. Rs 2,000 in fourth year

No charges in the 5th year onwards

Free switches per year 12

ULIP Fund Performance

The ULIP has five funds, two equity and three debt. The Classic Opportunities Fund is an aggressive equity fund with an equity allocation of 75-100%. It invests in large and mid-size companies. The Frontline Equity Fund is less aggressive with a large-cap focus and an equity allocation of 60-100%. The Dynamic Gilt, Bond and Money Market Funds focus on government securities, corporate bonds and money market instruments respectively. You can observe their performance in the table below:

Fund Benchmark 5 year % Benchmark % Outperform?
Classic Opportunities Fund S&P BSE 100 17.23 14.66 Yes
Frontline Equity Fund S&P BSE 100 16.32 14.66 Yes
Dynamic Gilt Fund N/A 8 N/A N/A
Dynamic Bond Fund N/A 7.91 N/A N/A
Money Market Fund N/A 7.78 N/A N/A

Source: Morningstar. As on 21st March 2018.

Conclusion

Kotak Single Invest offers plenty for a single premium. It has fairly low charges (except the one time 2-3% premium allocation charge),  several free fund switches and innovative investing and withdrawal strategies that mirror STPs (Systematic Transfer Plans) and SWPs (Systematic Withdrawal Plans) in mutual funds. You get the benefit of these without the exit loads and taxes that apply to mutual funds. The ULIP’s equity funds have done well. It also retains its tax advantage (tax-free maturity proceeds) despite being a single premium policy, probably its strongest selling point.  

Author
Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.