HDFC Standard Life – Wealth Multiplier

Introduction:

After a long time, I have come across an interesting product in the ULIP space which
combined with Pranabda’s arcane tax policies makes sense to me. Please go through
the salient details and compelling reasons why you should invest in this.

Salient Details:

Premium Paying Term: 3 Years

Term of Policy: 10 Years

Tax Deductions: Yes (Sec 10-10D)

Allocation Charges: 10% YEAR 1, 8% YEAR 2, 6% YEAR 3

Fund Management Charge: 1.75%

Life Cover: Fixed at 5 times premium (as per the rule)

What are the Key Selling Points:

1. From 2011 the proposed removal of tax benefits on LT capital gains will leave
investors naked in front of the income tax authority, even if you have serious
long term gains. It is prudent to switch the funds you hold in mutual funds into
a safer haven like ULIP where the gains do not become taxable. The switch
should happen before 31st March. Since markets are at 15k it makes sense to
do so now

2. Inspite of heavier upfront charges in the ULIP (this is relatively light), the
projections show both the products having similar end game values. At the end
of ten years a traditional investment in MF and the investment in ULIP should
get you Rs. 1,382,203 and Rs. 1,389,186 respectively. No significant loss
because of opting for ULIP

3. At the 10th year, assuming the long term gains are taxable (as proposed by our
FinMin) you will shell out a tax of Rs. 166,130 assuming 10% growth and 30%
tax. This will leave your ULIP far ahead in front over a traditional product

4. You can pay the premium through your HDFC Credit Card

5. Assuming in the 10th year the long term gains are not taxable, you come out on
par with the Mutual Fund industry thereby not facing significant disadvantages

6. From the 4th year, the mortality charges will be significantly low because the
Sum at Risk will be very less
My Recommendation:

Based on the cost benefit analysis and the overall performance of HDFC funds in the
last 7 years, I recommend a ‘Buy’ on this ULIP.

a) HDFC is a strong brand and very risk savvy company to invest in

b) Upfront charges are pretty less compared to others in market

c) Average performance over least years is > 20% annualized CAGR

d) This ULIP leaves you with either a huge benefit (if LT capital gains are taxed) or
no adverse impact (if LT capital gains are exempt) when compared to Mutual
Funds. Cannot get better

e) Based on a 10% growth as per IRDA the cumulative fund would be roughly Rs.
13.5 lacs. Based on past performance, the corpus could be as high as Rs. 30
Lacs in ten years

You can reach me on:

Balaji Rajagopalan:
Email:
TRY2XL@yahoo.com

Cell: +91.98195 21169

 COMPARISON - HDFC WEALTH MULTIPLIER WITH MUTUAL FUND INVESTMENT

HDFC Fund
#### Mutual
Premium ### Growth 10% Management 1.75% 2.50%
Fund (FMC)
Charge
HDFC STANDARD LIFE Mutual Funds
Servic
Premiu net net
Y premiu e premiu
m Alloc FMC investmen growth fmc net worth FMC investmen growth fmc net worth
EAR m Charg m
Chg t t
es
1.75 250,0 225,0 22,5 4,3 243,1 2.40 250,0 24,5 262,7
1 10% % 00 00 00 31 69 2% % 00 245,000 00 6,738 63
1.75 250,0 230,0 47,3 9,1 511,3 2.40 250,0 50,7 544,5
2 8% % 00 00 17 08 77 2% % 00 245,000 76 13,963 75
1.75 250,0 235,0 74,6 14,3 806,6 2.40 250,0 78,9 846,8
3 6% % 00 00 38 68 47 2% % 00 245,000 58 21,713 19
1.75 80,6 15,5 871,7 2.40 250,0 84,6 908,2
4 0% % - 65 28 84 0% % 00 82 23,288 14
1.75 87,1 16,7 942,1 2.40 250,0 90,8 974,0
5 0% % - 78 82 80 0% % 00 21 24,976 59
1.75 94,2 18,1 1,018,2 2.40 250,0 97,4 1,044,6
6 0% % - 18 37 61 0% % 00 06 26,787 79
1.75 101,8 19,6 1,100,4 2.40 250,0 104,4 1,120,4
7 0% % - 26 02 86 0% % 00 68 28,729 18
1.75 110,0 21,1 1,189,3 2.40 250,0 112,0 1,201,6
8 0% % - 49 84 50 0% % 00 42 30,811 48
1.75 118,9 22,8 1,285,3 2.40 250,0 120,1 1,288,7
9 0% % - 35 95 90 0% % 00 65 33,045 68
1.75 128,5 24,7 1,389,1 2.40 250,0 128,8 1,382,2
10 0% % - 39 44 86 0% % 00 77 35,441 03
0%
166,1
Tax - - Tax 30 166,130
Net Take 1,216,07
Away - Net Take Away 3
Delta without Tax (6,982)
Delta with Tax (173,113)