Are ULIPs Good Investments?

The unit linked Insurance plans are simply called ULIP. ULIP are financial instruments which will give a term insurance coverage and, investment in stocks  In ULIP, the premium paid by investor goes to two separate investments. One goes for your insurance and the other goes for the investment in stock market. The insurance part consumes less amount and the investment plan consumes more amount. But, in the first year, a major portion of the premium goes to insurance companies as administrative costs which includes the commission paid to the Agents.
So, in the first year, a major chunk of the premium goes to the company and a small amount of the premium is invested in stocks and a small portion is taken for the term insurance. From second year onwards, the administrative costs will be reduced substantially and the balance will be used for investment in stocks and also for the insurance.
If the premium is paid for a long period, at the end of the maturity, one will get a good return. Will this investment option get benefit to the investors? Stock market investments are destined to give good results in the long term, say, more than 10 years.
But people attracted to these plans only during bull market. Their investments get eroded in the next bear market. Now they get confused whether to hold or get rid of it or to invest more. As I said earlier, stock market are bullish in the long term, always, and it will give good results in the longer run. So if an Investor continues his investments even in bear market surely investment in ULIPs will be beneficial.

Is the Indian Stock Market topping out?

     The Indian Stock Market bench mark Index Sensex has scaled 21150 on January 2008 and it followed by a big crash and by October 2008, it tested a low of 7700, a level achieved in just 10 months. Stock Market crash was followed by economic slow down. The Indian Economy which was growing around 8% at that time, saw a downturn in its GDP growth.

     Now the same Bench mark Index Sensex is trading well near its all time high of 21150. When Sensex was trading in 2008, its PE ratio is 21. It was at that time a high Price to Earnings ratio. Historically when ever Sensex trades above the PE ratio of 20, it tops out.

    Now, with Sensex trading above 20000, already the PE ratio has crossed the 21 mark and it is trading well above that. Fundamentally, a top has to form around this level. Technically speaking, a double top formation is a possibility. Technical and Fundamental indicators point to a top at this level. Sentimentally, euphoria is seen in stock market circles. The continuous flow of FII funds in the market is boosting the sentiment. The bullish sentiment has reached the levels that was seen in January 2008.

    I feel it is the right time to withdraw the funds from stock market. With everything getting saturated, a bullish sentiment alone cannot take the market further. So a correction is going to be there in the near future.

    Protect your capital and don’t get sucked into the crowd. Beware, in stock markets, crowd is always wrong.