SBI SmartULIP

With market-linked products finding fewer takers, insurance companies are launching more “guaranteed” products to lure investors. The latest to join the bandwagon is SBI Life insurance with SBI Smart ULIP, a product that guarantees returns based on the highest NAV recorded by the fund in the first seven years.

How it works


This is a 10-year limited premium ULIP where one can choose to pay premium either for a three or five-year period, to be specified at the start of the policy. The sum assured is five times of the annualised premium.

The premium paid by the policy-holder, after deduction of allocation charges, is invested in a money market fund. On the 8th and 23rd of each month, your investments will automatically be moved to the Flexiprotect Fund. This fund, which invests in a mix of equity and debt, attempts to optimise returns, while providing significant capital protection, through dynamic asset allocation.

The guaranteed maturity NAV of Flexiprotect fund will be based on the highest NAV recorded over the first 168 fortnights or seven years (NAVs on 8th and 23rd of each month to be reckoned) from the investment.

Maturity Benefit: On completion of the policy term, the fund value will be paid. The NAV will be higher of the NAV as on the date of maturity or the guaranteed maturity NAV of 168 fortnights.

Death benefit: In the case of death during the policy term, the nominee will get sum assured or fund value, whichever is higher. .

Fund options: The two investment options currently offered are Flexiprotect and Money Market. Under Flexiprotect, the fund has the option to switch between 100 per cent in equity or debt and money market instruments. In the money market option, it will invest a maximum of 20 per cent in debt and between 80 per cent and 100 per cent in money market instruments.

Eligibility: The minimum age at entry is 8 and maximum is 60 years. Premium mode: Yearly, half-yearly, quarterly and monthly.

Minimum premium: Rs 50,000 in the annual option, Rs 25,000 half-yearly, Rs 15,000 quarterly and Rs 5,000 in the monthly mode.

Charges: The premium allocation charge, policy administration charge and fund management are applicable. Comment on product: In ULIPs, risk is usually transferred to the investor. In such products, insurers offer a guaranteed return to deal with the investor’s risk aversion. SBI Smart Life guarantees the highest NAV prevailing in the first seven years (168 fortnights).

The advantage of this feature is that if the market undergoes a sharp correction at the end of a seven-year term, and if you held on to the policy till maturity, then you can earn higher returns as per the guarantee rather than returns based on the prevailing NAV.

You will receive the highest NAV during this period as your fund value. This product adopts a dynamic asset allocation strategy to offer this guarantee. Such a strategy, if properly implemented, may prevent the fund from maximising returns; but downside may be better protected. A dynamic asset allocation strategy, however, is not easily implemented, as much will rely on the fund manager’s ability to time each switch.

Based on its allocation pattern, the fund is roughly comparable to a balanced mutual fund. If one compares the returns generated by the pure diversified funds and balanced funds over a long time-frame, the latter usually fall short due to their lower equity exposure. The best performing balanced fund’s 10-year compounded annualised return is 14 per cent.

Now, consider a male investor (40 years old) who invests Rs 50,000 per annum for a five-year period. If the plan earns an annualised return of 10 per cent, at maturity, the corpus will be Rs 4.09 lakh, taking into consideration the various charges associated with the product. The effective yield will be 5 per cent, after covering risk. Since the fund will invest in equity, there is every possibility that it might earn a higher return than 10 per cent. To put this in perspective, if one invests in a fixed deposit that will earn 8 per cent annually, his effective yield, post-tax, works out to 5.6 per cent if he falls in the highest tax bracket.

Those in the highest tax bracket can consider investing in this fund, assuming higher risk for higher return. Alternately, if you prefer to park your money in National Savings Certificates and take a term assurance for Rs 6 lakh, you may yet receive marginally higher returns than this provided redeploy the maturity proceeds of the NSC at 5 per cent until a 10-year term is completed.

This would however, require constant monitoring and transfer of funds, although the term assurance will provide a higher risk cover. Instead, with SBI Smart ULIP, you may be able to settle for a marginally lower return but hassle-free investment.