Posted by: Ravi Saraogi | May 16, 2010

The world of finance…

I believe the world of finance is unnecessarily made out to be too complex. The greatest hurdle in promoting the finance literacy and increasing financial inclusion is the image of finance as an arcane world that is comprehended only by ‘experts’. And matters become worse when these ‘experts’ let you down, as was the case during the sub prime crisis. There is obviously a vested interest in keeping things the way they are. I really sometimes wonder that the art of investing if broken down to the bare basics, isn’t all that complex at all. The habit of saving and evaluating financial instruments like bonds, equities, commodities, etc for making an investment decision can be achieved without complete reliance on the people of finance.

The case which I find most disturbing is the way ULIPs are sold in India. Every instance that I have come across of ULIPs being peddled is fraught with so much of misinformation that it seems downright illegal. Having talked to numerous people who have bought this instrument for tax savings purposes, not even one has come out as having properly understood the pros and cons of buying a ULIP. Let me clarify one thing at the outset, ULIPs are not an inferior investment product. However, without understanding the basic structure of a ULIP and without comparing it with an ELSS scheme, an investor will not be in a position to understand that an ELSS may actually make more sense for him than a ULIP.

More on this later.



  1. I’ve been reading along for a while now. I just wanted to drop you a comment to say keep up the good work.

  2. Hey Ravi, how are you doing…

    You are calling investing an ‘art’…

  3. Yes… I am calling investing an ‘art’…. Do you think its a Science?

  4. Well Ravi, ULIPS are not inferior investment instruments but they are just a vanilla combination of insurance and market investments which have a higher commissions for the vendor. One would rather buy a term policy and invest the rest of the money of the premium individually. ELSS making more sense is true but to be on the same plane the investor would need to cover himself for his life.

  5. Yes, ULIPs are not an inferior product.. What I was ciritical about was the way ULIPs are sold in India and a lack of understanding about the product in general which leads to a misinformed investment decision.. More specifically, I have seen numerous cases of people buying a ULIP who are not interested in the insurance part of it, but only in the tax saving and the equity returns.. If tax saving and equity returns are the objective, ELSS would have made more sense for these investors..

    The agents earn a higher commission on selling a ULIP than an ELSS.. And hence they peddle these instruments as ‘high return’ vehicles which a person should invest in even if he is not interested in insurance…. Well, since at the end of the day, both a ULIP and ELSS invest in equities, there cannot be a substantial difference between the returns they generate (with a ULIP involving higher charges like mortality charge, premium allocation charge, in all probability it would generate a lower return than a corresponding ELSS).

    Thus for someone who bought into the arguments of the agent to buy a ULIP even if they are not interested in insuring themselves, they would be making a misinformed investment decision. However, if someone if interested in all the three benefits of a ULIP- tax savings, equity returns and insurance, ULIPs are by far an extremely suitable investment option.

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