Take time off to think beyond the hihest NAV syndrome.
Suppose you plan to invest Rs 100000.00 How much of it will fetch you units? What kind of asset allocation is planned by the company?
So what could be your beginning NAV?
What is the investment style? what processes does the company use for ensuring the spotting and holding of the 'highest NAVs'?
Good sales .. does it mean good performances...remember there has been run away sales successes from well known business houses under legally run schemes. Market turns opposite direction and company succumbs to macro-economic pressures
What kind of rate of return has a holding period of 8 years in the indian market going forward? 7-8 year forward interest rates for GOI bonds are at 7.49 % pa and Non-GOI bonds are at 9.04%pa based on wholesale debt market data from NSE (17.03.2010).
Until last year, companies like Birla Sun Life, Tata AIG Life and SBI Life offered guarantee on the highest NAVs only on certain dates of a month (reset dates). But the latest range of products, such as the ones offered by Life Insurance Corporation of India, ICICI Prudential Life Insurance and Reliance Life Insurance, plan to capture NAVs on the daily basis and offer guarantee on the highest captured in seven years.
The Constant Proportion Portfolio Insurance (CPPI) is a professional manner of locking NAV. But it does not guarantee highest NAV itself. One make a forecast of possible ups& downs and then fix up in advance the levels of asset allocation. The accuracy of predictions about future market movements need not be correct always. So even if the scheme misses best levels in the market, at the end of the term, you land up with some level of HIGHEST NAV as per its own track record. Not the best level of NAV in the market is captured for you. Then where is the highest rate of returns?
Complexities increase when fund managers uses derivatives also along with CPPI to manage aggressively. Go with your kind of products. invest in things taht you understand fully. Not in assurances.
As long as there is no guarantee on returns, these products are subject to market risk. Higesht NAV is guaranteed, but not returns. Much remains to be desired about the asset allocation, strategies for managing investments. Always have the basics right: Insurance is for protection and nothing else.
All the best.
