ICICI prudential Life introduced Return Guarantee Fund (RGF) recently and I got a call from its tele-caller today. This is yet another option if you like to invest in ULIP plans. I was told by the representative that this plan was launched to public on 22nd Dec’08. I would like to list out the information provided by him about this plan in this post.
After LIC’s Jeevan Aastha and IDBI’s Bondsurance – a fixed return products, ICICI Prudential has launched a fund called RGF(Return Guarantee Fund) on the similar lines. However, the former two are single premium policies while RGF is an ULIP fund with multi premium options spread over a minimum of 5 years. The common factor among all three is the insurance coverage as top up for investment schemes. Advantage of all these schemes is that they offer tax benefit on investment amount as well as the returns upon maturity.
Now let me take you folks through the illustration of the RGF plan as told by the representative. I doubt if this information is proper or not as I could not find all that he said anywhere on ICICI’s website. As per him, if an individual invests a sum of INR 30,000 in this plan, you are assured of getting 50% returns on FIRST year’s premium. However, you will continue to pay annual premiums for 5 years. For the remaining 4 years, ICICI will pay an *estimated* 12% compounded interest on your money. So, your contributions would account to 1.5 lakhs by 5th year and you would get an estimated return of 2.4 to 2.5 lakhs towards the policy maturity. I fail to understand how he is projecting so much! More over he himself acknowledged the fact that on the agreement it is mentioned as 10% compounded interest would be added to the premiums.
I see a lot of catches in these kind of plans. One such catch is that you may switch out to other options anytime on the NAV value, but you will miss out guaranteed return if switched before 20th Dec 2013. To get to the facts, am I getting 50% minimum guaranteed returns for my first premium atleast? Well, it is not truth either. This is due to the fact that only a portion of your first premium is used towards purchase of units. Also, you may want to note that about 20% of the premium is deducted towards premium allocation charge, which they don’t mention while selling the plan to you. Though you expect a total return of fifty percent(Rs 10 NAV to Rs 15 NAV after 5 years), your effective guaranteed return after charges would be way lesser than that, which close to 20% after 5 years. To add to all these, there are more charges that you should be aware of. Prominent ones include the policy administration charges which is about 6% per annum. Also, brace up to shell out some of your NAV’s over a period of time in the form of mortality rate whenever you opt for cancellation of units.
Does that sound good to you? I feel it is a way to fool people. You would earn more in a fixed deposits, ofcourse without the insurance cover though! These are the lucrative times to trap the investors in the name of tax savings. If you are looking for Insurance cover, go for dedicated insurance policies than opting for ULIPs with a very marginal insurance cover.
Disclaimer:This article is based on my personal opinion and observations derived upon my conversation with a tele-caller. For more information, please check with ICICI Prudential Life Insurance directly. Image extracted from ICICI web site.