And worst of all, patient

Questions, reasonable questions, arise with respect to my Saving Tax post. I thank 'Value Investor' for bringing them up, you can read his/her comments here. My analysis was perhaps too simplistic and his/her views on the subject are very much worth examining. I shall call him/her VI for the remainder of this post for convenience.


What? No Insurance?

With respect to my flat insurance no-no, VI points out that insurance is sometimes necessary (or necessary at some time) and you might as well get tax benefits out of it under 80C. It can be cost effective as, VI explains, "pure term policies are not investment products at all, but are pure insurance products, and very cheap at that." Pure term policies don't pay you back so are cheaper than money-back policies for the same coverage amount plus "[pure term insurance] gets cheaper the earlier you take it". Another insurance option is some flavor of money-back plans, especially ULIPs, that pay you an amount upon maturity that "certainly [are] far better in terms of the returns they provide than PPF for anybody who is comfortable with a modicum of risk".

I agree with VI's views on term life insurance. If you don't think you need insurance, think again, as the ad says. In fact, if i was going to buy any sort of insurance, I would stick with term policies only. However, I did not explain my insurance no-no and the impression given was that I will never buy insurance. My current situation is this: I have no dependents, no house, no loans and my parents are well off (MUCH better than I, I might add). At this time, insurance is not a priority. The relationship between cost of term life insurance and age is something that I ought to examine carefully, that is, am I better off buying term life now since I'm going to need it later anyway? But that is the why i say 'no way' to insurance. I don't need term insurance this year.

ELSS vs ULIP

The choice between ELSS and ULIP is clear to me. The overall cost of a ULIP works out greater than a combination of ELSS and term life insurance (see ELSS vs ULIP, PersonalFn.com or This or That, Economic Times).


ULIP vs. PPF

This one is tough. If you're going to lock your money in something other than a ELSS, should you go with PPF or an ULIP? Well, it all depends. First, it's my contention that , despite past performance, there is no guarantee that the equity markets will provide 15% CAGR or any other number so, and VI agrees, growth in ULIP carries more risk.

ULIPs assure only 3% or so annual return and the growth component that will allow ULIP to beat PPF will come from investing in the markets. This is something I cannot honestly say I am certain will happen, especially 6 years from now. ULIPs are far more stringent with respect to size of yearly premiums. With PPF, you can get away with Rs.500 a year if somebody changes the I-T law. And let's not forget, if you dont pay, you're not covered.

This PPF is for a rainy day (about 15 years from now) and consists of funds that I cannot actively manage right now. So, I don't think of the PPF as a good standalone investment BUT it is a vital part of my integrated portfolio. I dont want to pay for insurance under ULIP as I have already scratched out a ELSS and term life insurance combination.

In The End, It's All About You

This may not be the best approach for everyone, of course, but as VI concluded, to each his own.