BSLI Foresight Plan- Complete Review

KEY FEATURES


NATURE OF PLAN:

• ULIP with option of Guaranteed Minimum Maturity Benefits (GMMB) - similar like guaranteed   highest NAV Plans.
• Self-Managed Option:– Funds to be managed by investor by investing in different funds available.
• Guaranteed Option:- Investment in Foresight Fund with GMMB at Maturity. Highest NAV during first 7 policy year would be considered to calculate GMMB at maturity.

UNIQUENESS OF THE PLAN:
Lowest NAV during the year would be applicable for the Premium investment during that particular year and will be calculated on completion of 5th policy year.


FUND COMPOSITION:
11 Different Fund Available with different fund composition. But the GMMB is only with Foresight Fund. Asset Exposure of Foresight Fund is:
Asset Type                               Max Exposure                   Min Exposure
Equity and Related:                       100%                              0%
Debt/ Derivatives:                          100%                              0%

LIQUIDITY:

• Partial withdrawals: Only Only After completion of 5th year.
• Policy Surrender: Only After completion of 5th year.
• If Premium not Paid: If Premium not paid at any time during first 5 policy years, policy is considered to be discontinued and the fund value will be calculated by applying discontinuation charge and paid at the completion of 5th policy years.
• Loans Facility: available upto 40% of fund value. Interest rate applicable: SBI PLR + 2

FUND ANALYSIS

• Highest NAV Funds only guarantee “Return of Investment” not “Return on Investments”.
• Funds’ Portfolio are managed and allocated dynamically between equity and debt in such a way that the highest NAV attained is locked by moving a portion of equity holding to debt, whose maturity value will be equal to highest NAV attained till then.
• Over a period of time, equity exposures are bound to move to debt. The reverse, however, may not be possible as when equity markets fall, it may not be possible to move debt exposure to equity as they may be locked in to assure highest NAV.
• Peer ULIPs (guaranteed return): “Insure Smart Plan” (Canara HSBC Oriental Bank of Commerce Life Insurance) ICICI Pru Pinnacle Fund II etc. All these plans have more or less similar features. However, they differ in charges like Premium Allocation Charges, Fund Management Charges, Mortality Charges etc and fund management approach.
• Fund managers will not take high risk as he has to guarantee NAV attained during the initial policy years. This will result in lower return as compared to other pure non-guaranteed funds. However, these ULIPs are safe for investment and is suitable for Risk Averse Investors.

FUND DETAILS

Particulars                        Details

Entry Age:                         Min- 8 years, Max- 60 years

Minimum Premium:          Single Pay Option: Rs 2,00,000

                                          5 Annual Pay: Rs 1,00,000 p.a.
                                          (premiums can be paid in advance. Present discount rate 5%)

Maximum Premium:         No Limit

Policy Term:                    10 Years

Min Sum Assured:            Age Single Pay 5 Annual Pay

Below 45 Yrs:                  1.25 x Basic Premium 10 x Basic Premium

45 Yrs Above:                  1.10 x Basic Premium 7 x Basic Premium
Can also Choose Higher Sum Assured at Policy Inception

Riders:                           No Riders with this plan

Maturity Benefit:

Guarantee Option:          Higher of ‘Fund Value at Maturity’ or ‘Fund Value at Guaranteed Benefit’.
Self Managed Option:      Fund Value at maturity.

Death Benefit:                ‘Fund Value’ + ‘Sum Assured (reduced by partial withdrawals)’.

Partial Withdrawal:       Only After completion of 5th year.

                                       Min- Rs 5000; Max- no limit but have to maintain Fund Value = Rs 25000

Policy Surrender:         Only After completion of 5th year.

CHARGES

Policy Allocation Charges:             5% of Annual Premium.

                                                        Similar to other funds- no advantage with this fund


Policy Administration Charges:      No Policy Administration Charges.
                                                        Advantage with this fund.
  Fund Management Charge:

Foresight Plan

5 Year Pay Option: 1.35% pa + 0.40% pa = 1.75% pa
Single Pay Option: 1.35% pa + 0.25% pa = 1.60% pa

For Self managed plans
(other than guaranteed Foresight Plan) charges varies between 1% - 1.35%

charges are at high side as compared to other similar plans.

Discontinued Charges:
In Policy Year 1 Lower of 6% of Annual Premium or Face Value (Maximum of Rs 6,000)
In Policy Year 2 Lower of 4% of Annual Premium or Face Value (Maximum of Rs 5,000)
In Policy Year 3 Lower of 3% of Annual Premium or Face Value (Maximum of Rs 4,000)
In Policy Year 4 Lower of 2% of Annual Premium or Face Value (Maximum of Rs 2,000)
In Policy Year 5 Nil

Deducted from Total Fund Value at the time of surrender and 3.5%pa interest will be credit till the payment of amount Policy Year Foresight Plan
 Mortality Charges:

Mortality Charges Applicable as per Age and Gender. But the mortality charges are at higher end.

More than many similar fund like Insure Smart Plan (Canara HSBC Oriental Bank of Commerce) ICICI pinnacle Fund II etc.

ICICI Prudential PMS Fundamental Strategy Index Portfolio

ICICI Prudential PMS Fundamental Strategy Index Portfolio

A Series Under Diversified Portfolio 

INVESTMENT STRATEGY:

ICICI Prudential PMS Fundamental Strategy Index would be a passively managed portfolio tracking the Nomura India Fundamental Strategy Index, with an endeavour to achieve the returns of the above strategy as closely as possible.

PORTFOLIO FACTS:

 20 stocks are selected from top 100 listed stocks (by market capitalization).

 Two Plans available: FSI 15 (with min Rs 15 Lac investments) and FSI 25 (with min Rs 25 Lac investments)

 Selection of stocks:

o Fundamental Strategy Index has identified 8 parameters- P/E, P/BV, P/Sales, Enterprise Value (EV)/ Sales, EV/ EBIT, EV/Free Cash Flow, Dividend Yield, Market Capitalization.

o The strategy takes into account the most recent trends, giving more weight to the fundamental factor that the market is assigning importance on quarterly basis.

o Based on these parameters and using a mathematical model, each stock is analyses and top 20 highest scorers are selected.

o Equal Weightage given to all stocks i.e. 5% of total portfolio allocated to each of 20 stocks in the portfolio.

 Portfolio allocation:   Equity:                                         65%-100%

                                  Debt and money market instruments: 0%-35% in.

 Risk Mitigation Strategy:

o Equity allocation reviewed every quarter and decreases portfolio exposure to equities with increase in volatility.

o If strategy underperforms nifty by more than 10% within a quarter, the equity allocation for that quarter is switched to a portfolio that replicates the broad index like Nifty.

 PMS Charges: for Rs 15 Lac minimum investment

o Upfront Fee: 2.25% of total investment

o Fixed Fee: 2.5% pa calculated daily and deducted quarterly of portfolio value

o Accounting Charges: Approx Rs 10,000 pa

o Custody Fee: 0.15% pa of portfolio value

o Exit Load: Upto 1 Year:             2.25% of portfolio value.
                        1-2 Year:          1.25% of portfolio value.
                        2-2.5 Year: 1.00% of portfolio value.

                        Above 1 Year: Nil


 Portfolio is suitable for an investment horizon of 3 years & more.
                     

ANALYSIS & RECOMMENDATION:

 The strategies adopted for the PMS look impressive. But efficient execution of these strategies will remain a major concern.

 PMS is claiming that if the portfolio had been operational since 30 January 1998(till 16 July 2010), it would have yielded returns of 5,893% (39% CAGR) as compared to the Nifty return of 559% (15% CAGR) i.e. more than 10 times better than the Nifty during this period. This sounds mis-selling.

 In any case 65% of the portfolio assets will be in equities which make this portfolio risky especially in bearish market. Even ICICI Risk Profile of the portfolio is 5 (on a scale of 6). This will lower the effect of passively managed portfolio and maintain a high level of risk.

 Considering parameters like high market capitalization, Reliance, Infosys, TCS, SBI, ONGC may be in the portfolio which may generate average return in next 2-3 years. This will restrict Portfolio to perform at average level.