'Future Income Generator' is yet another Ulip that promises a lot, but may not be great for your finances.
"Future income ki guarantee" is an advertisement that has been running constantly in leading FM stations. The initial script is followed by a sales pitch about the wonders of this policy.
In fact the unique selling proposition of the pitch is that you can receive Rs 17,888* per month by contributing just Rs 1,000 per month now. Note the asterisk (*) though, because it is the part that includes a lot of disclaimers. And the interpretation of this fine print might change your initial thoughts about the product.
The tagline of the product reads something like this, "Income even after you retire. Enjoy Life." A look at this product's information on Bajaj Allianz's website gives the following information:
Our Future Income Generator retirement plans offer flexibility like never before
- An option to avail up to one third of the fund value as tax-free lump sum.
- Open market option to purchase an immediate annuity from Bajaj Allianz or any other life insurer as recognised by Irda.
However, the asterisk (*) reveal that the investment made in future income generator actually goes into their New UnitGain Easy Pension Plus, a Unit Linked Pension Plan.
In other words, this means the underlying product of the "Future Income Generator" is actually New UnitGain Easy Pension Plus. Here are some more details of New UnitGain Easy Pension Plus.
There is a choice of five funds, from 100 per cent debt to 100 per cent equity, with an option to have three free switches every year.
The premium allocation charge varies from 8 per cent to 16 per cent based on the premium paid. Lower the premium, higher the charges.
Besides this cost, there is a fund management charge of between .95 and 1.75 a year and policy administration charge of Rs 50 month (Rs 600 a year). The latter number will keep escalating every year by 5 per cent.
Like other Ulips, this policy can also be surrendered after three regular premiums have been paid and the surrender charges are 5 per cent in the fourth year, 2 per cent in the fifth year and no charges from sixth year onwards.
From the above it is clear that this is a deferred pension plan. That is, there is no immediate payout to you at present. It will happen only on retirement or a date chosen by you. Obviously, this implies that you would be contributing to a deferred plan from now onwards.
However, since immediate pension plans are available where you get a monthly income from the very outset by giving money in a bulk, it does not make great sense to go for such a deferred plan.
Most pension plans in India are deferred annuities, where the premium you pay gets invested in various fund options to build a retirement corpus.
The main question that you should ask yourself that is building a retirement corpus through a deferred pension plan a great idea. The reply from all financial consultants would be definitely not!
Coming back to the plan, one of the above two advantages that the plan seems to point out include that an investor only has a choice of availing up to one third of the fund value tax free lump sum.
In an era where there is zero tax on your public provident fund, employee provident fund and equity-oriented mutual funds (if held for over a year), it makes little sense to invest in such products. Between the above mentioned products and a deferred pension plan, it is obvious that the former would be better for your finances.
This is the most important point to consider before you get enthused by cliches like "tax free" and "income generator".
It is important to understand that though deferred annuities are mostly sold as pension plans/income generators and tax saving devices, you can safely ignore such plans for your long-term financial health and flexibility.
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