Time to build on long-term wealth

[Sukumar.N]

Money to wealth

If you wish to build wealth for the longterm with the help of stocks
but are afraid of the high volatility inherent to a direct equity
exposure, you can look at two more products – unit-linked insurance
plans (ULIPs) and pension plans.

Current market levels make both a bargain:

A giant leap with ULIP

Despite a raging controversy surrounding the product and a market-
mayhem since January, ULIPs have managed to post some good returns.

In fact, over the past three to five years, many insurance companies'
funds managed double-digit returns.

Having said that, I would still advice that only young investors set
aside a portion of their tax-planning funds for ULIPs as the risk-
reward ratio is comfortable for their age.


ULIPs are for long-term

What this means is that, in real terms, those who pick up ULIPs now
are likely to see a limited downtrend in their portfolio. But remember
that the outlook for ULIPs is for a 5-10 year premium-paying term, as
ULIPs are cost-effective only in the long-term.

ULIPs also have an added advantage of providing flexible premium-
payment structure, but use the option of discontinuing them only in a
state of extreme distress.

Additionally, a lot of ULIP products aid young parents in building a
corpus for a child's education along with risk covers.


Plan for pension too

Pension plans of insurance companies also provide asset allocation
towards equity. And with the current market showing signs of bottoming
out over the next quarter, this could be a good opportunity for long-
term investors seeking pension income.

If you are still not convinced about the strength of the market in the
near term, go for an ECS (Electronic Clearing Service) option which
allows for monthly investments. This will allow you to take advantage
of market volatility, like SIPs (Systematic Investment Plans).

However, such options are available only for those who sign up for a
long tenure of investment.

Pension plans with a shorter tenure

For those looking at pension plans with a shorter tenure of less than
10 years, the allocation should be slightly higher towards debt as
equity is recommended for longer terms.

Pension plans with a balanced fund allocation can do the job too. Or
investors can just allocate premiums between equity and debt according
to their comfort levels.

However, such strategies require a close watch on the market trend.


N.Sukumar
Research Analyst
www.kences1.blogspot.com