Kotak 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|
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.
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.
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.
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
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.
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.