Why ULIPs are a great investment choice for NRIs

Back in 2007-08, I used to be a strong critic of ULIPs (Unit Linked Insurance Plans).  I would advise friends against investing in them. What pissed me off about these products was the high upfront commissions cost that ate into the premium so much that it would take years to show profits to the investor. On top of it, agents would use ridiculous market returns assumptions in illustrations shown to customers. It was normal to see illustrations assuming 15-20% annual returns that show astronomical returns to investors. Most investors would be bitterly disappointed with the returns seen in the first 2-3 years and either discontinue or withdraw prematurely, thus never realizing a net gain. Click here to see my post back in 2007 when I junked the MoneyPlus ULIP plan by LIC.

Fast forward to 2016, I am now a proponent of ULIPs. When I went to India on vacation this summer, I met my banker and as usual he started explaining this latest investment product. I thought, 'here we go again...'. But as I listened more and later researched the finer details on the website, I was pleasantly surprised to find that the new, refreshed ULIP product is more protected and advantageous to the investor. I ended to taking up a significant financial commitment, which I am confident will reap me good profits in the long run.

Thanks to IRDA and SEBI, the new rules and regulations put in place have greatly enhanced the value of these products in investors' portfolio. I now strongly believe that ULIPs are a great product to be included in the portfolio of any investor, and especially for a NRI. Following are my reasons:

• Low cost - Premium allocation charges have come down from around 20% to the 3-4% range
• More low cost - Longer term investors will enjoy very low fund mgmt charges of 1-1.5%, even for equity funds. These charges are even less than that of mutual funds. So, if you stay invested for 15-20 years or more, you will do better with the ULIP than with a comparable MF.
• Insurance - A 5 lakh per year investment will get you a minimum insurance cover of 50-60 lakhs. And you can add on to it. So, no need to shell out additional premium or do additional paperwork for another policy. And in case you were wondering, you will be covered regardless of where in the world you live.
• Tax - The most important feature I like about this product is that any capital gains and the entire withdrawal will be completely tax free in India. Of course, if you live in the US at the time of withdrawal, US tax rules will apply. However, if you entertain thoughts of returning to the motherland at some point, this is an attractive proposition. Think about it. You invest 25 lakhs over a 5 year period and stay invested for another 20 years. You return to India by then and withdraw a corpus of 1-1.5 crore rupees, totally tax free.
• Flexibility - This has always been the strength of ULIPs. Depending on your life stage and financial goals, you can reallocate your money between different fund classes - equity, debt, money market, etc.

Now, why do I say ULIPs are a great choice for NRIs? Well, ULIPs are great for any investor. But for US based investors, it is especially useful since taking exposure to Indian equities through the MF route is now much harder due to the FATCA regulations.

Finally, this is a great time for US NRIs to invest in India. The US equity markets are at a point where I see very little upside in the next 3-5 years. The same goes for Europe. Fixed return investments will return below inflation for the next 5-7 years. The only growth opportunity in the medium term lies in emerging markets. Within the EM bracket, India looks really good because of the significantly improved investment climate, encouraging start up ecosystem and a strong central government that has pushed through significant reforms like GST and FDI in key sectors like Defence and eCommerce.