ULIP or Equity MF- Which one better?

ULIP or Equity MF – Which one better?

I have often seen very confused investor for which one is good for investment either ULIP or Equity MF. Both are long term investment product. Investors often lure with the ULIP for very catching word insurance. Whereas equity mutual fund do not offer any insurance but great return as the efficient wealth creator in long term.

Although, Unit-linked insurance plans (ULIP) offers many types of funds from equity to debt segment. If you compare its return over the five year period, it has performed very bad when we compare it with equity fund return.

Recently a very informative financial magazine has done a study about the return of ULIP and equity mutual fund schemes. The Top 10 ULIP funds has given an average anuualised return of 16.61% while mutual fund schemes has delivered an average return of 22.20%. If we compare top 25 ULIP funds and top 25 equity mutual funds, ULIP delivered an average return of 15.28% and MF schemes return has been 20.71% in the same period.

ULIPs published their NAV before adjusting fund management cost and other cost while equity mutual funds published NAV after adjusting all cost. It is the reason investors are not getting right comparison between ULIP and equity MF funds. Returns from ULIP would be more worst after deducting charges like premium allocation charge, mortality charge and other charges. These charges are different for ULIPs managed by various financial entities. Only fund management charge is adjusted in unit price of ULIPs funds. MF schemes unit prices are calculated after deducting all expenses. This makes equity mutual fund return more superior than ULIP funds.

The fund management charge, of around 1.35% may attract investor towards ULIP as it appears lower than expense ratio of equity mutual funds. But when we consider other costs of ULIP- in most cases- it goes up to above 3% in the initial years of investing in ULIP. In an analysis of 237 ULIP funds, more than 50% of ULIP funds underperformed the Sensex over a period of 5 year ended in Feb 2015.

IRDA has put some cap on various charges after 2010. But still the costs of ULIP are much higher than equity MF. If you are looking for good long term investment option with low cost, equity mutual funds are still good choice.

If you have doubt about investment product and want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for conducting seminar in your city, just drop the mail.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Gold : For Wealth Creator or Beating Inflation ?

Gold : For return generation or beating inflation ?

After discussing about equity and debt asset class, we are now going to talk about gold. From ancient time gold has a prominent position in our country. Gold is a precious metal. Almost every Indian has stored it no matter of the quantity. In India, we are gold obsessed people and the largest gold consumption country in the world. It is the reason after global decline in prices of gold its price has not gone down in India. The demand is still high after many efforts done by the government to curb the demand of it. 

Uncertain global economic market has also increased the demand of gold. Many of wealth managers now took it as a part of their portfolio. In my opinion gold as an asset class is hedge against the inflation.  One can take a limited exposure of gold in their portfolio. When equity and debt market not generate the return and even not beat the inflation then it comes to rescue for portfolio value. 

After 2007, the steep rise in gold prices has lured many investors and many of the investor has purchase significant quantity in their portfolio. I have repeatedly said to the investors and through my blogs for limited exposure of gold in the portfolio. Equity derives their value from companies, real estate derives their value from rental income but gold has no commercial use and produce nothing except gold ornament. There is nothing to evaluate the value of gold. Its price only depends on demand and supply. A very famous line about gold has said someone that the value of gold is in the eye of buyers. We cannot evaluate its true value.

Uses of Gold:

• Worldwide central banks and governments hold gold as a reserve currency in uncertain economic condition. Gold can help hedge such risk of devaluation of money, inflation and deflation.
• Many companies and banks are providing loan against gold. People pledge their gold and get loan instant. 
• In India gold mostly uses in ornament form. People in India have special emotion for gold. The buy gold for many auspicious occasions like marriages, functions, festivals and etc.
• Many fund managers buy it for portfolio diversification purpose.

Traditionally, in our country gold are purchased in the form of jewellery, coins and gold bar. It has many disadvantages like storage cost, making charges, quality issue, purchase at a premium and resell below market price. Due to these disadvantages people now adopt unconventional way to purchase gold like Gold ETF, Gold Mutual Fund, It offers lower storage cost, no quality issues, and better pricing.

If you want more information regarding investment realted or you have any other query about investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

Temptation about gold

Are you tempt about Gold ?

Now a days, when I meet any my friends, clients they all asked one common question what is your view on gold price. Some of them talk about investing in gold is the best option as per today’ situation for long term and some tempt for short term trade and want to reap benefit of short term trading. People invest in gold for a many reason. The reason may be hedge against inflation, political crisis, the risk of stock market crash and many more. In our country people invest in it for child’s marriage and transfer it to next generation and almost every household have some quantity of gold. Investing in physical gold is top choice of the people. But in current financial planning terms the question is how much percentage you should allocate to gold. The answers are quite interesting range within 5% to 45%. Yes, believe me some investor or financial advisor advice even more than 45% allocation of gold.

So in my understanding one should understand clearly what kind of investor you are before trying your hand in gold investment or speculation. Because there are different types of participant in gold market and a plenty of options available like ETF gold, Gold Mutual Fund, Gold trade in National Spot Exchange and many more. Earlier we had only limited options like physical gold in terms of coin, bar, jewellery. There are also Future and option trading also available in exchanges. As an investor be clear your category whether you need to trade in future and option gold or only invest in coin, bar or paper gold. There are different set of expenses in very investing mode. So it is very important to understand the cost of investing and fix the investment horizon also.

Do you proper homework on all the available mode of gold. Do not fully dependent on your broker. There are very useful websites are available with useful information and tips. If your horizon is long term investment then go with National Spot exchange and if you want trade for short term gain / loss go with MCX (Multi Commodity Exchange).

Understanding the movement of gold is very important t o get success. Gold is used not only as a commodity but also as a currency. So there are many factors to affect the price of gold as it is associated with global events. There are also risk of loose money in short term trade so it is better to understand those risk also. In point of view trading , I advise keep book you small profit and never forget stop loss otherwise the chances of losing money is more. Never compare other’s return with your return. Be happy whatever profit you have booked. In trading both are possible you can earn money and you can lost money also.

As you may have different opinion from mine but in my opinion keep away from trading and invest 20 % maximum of your investment portfolio as it is hedging instrument not a good return asset for long term. There are not much gain in speculating of bullion commodity.

If you have any query regarding investment please feel free to ask.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com