In an opinion poll, we had asked respondents in the age group of 23-25 years a simple question: If you were to buy an insurance scheme for yourself, what would that be, and why? Almost 90% of our young new recruits said they would be investing in unit-linked insurance plans (Ulips). One main reason cited was Ulips fulfilled two financial needs —the need for an insurance cover to tide over exigencies and also the need to create wealth to fulfil financial goals.
Long-term investments
Young respondents were aware of the medium-to-long-term investment horizon (10-15 years or more) in an Ulip. These youngsters have age on their side and do not mind waiting for the Ulip to deliver the returns. In fact, Ulips have a minimum lock-in period of five years, which ensures that youngsters do not use this investment for immediate liquidity—it could be a sudden, intense urge to buy the Harley Davidson—but for fulfilling financial goals. The charge structure of Ulips has become very competitive and, in fact, the FMC (fund management charge) can be a maximum of 1.35%, which gives Ulips a distinct advantage over a mutual fund, where the average cost structure is 1.75-2.5%, depending upon the fund. Hence, over a period of six-seven years, Ulips are likely to outperform a mutual fund in terms of cost, assuming an identical fund performance.
