The markets have touched 12,000 and still counting. Experts are divided on the direction the markets will take in the days ahead. Insurance agents will use the rising markets as an opportunity to push sales of equity-linked insurance policies, But, if the markets take a dip after you have invested, you will have little opportunity to exit. So, does it make sense to invest in equity ULIPs?

On the other hand, mutual fund agents will tempt you with new fund offers with little or no lcok-in. So what do you do?

One year returns of equity ULIPs    
Company                    NAV as on     Growth
9th Sept 04     9th Sept 05
ICICI Pru Life     19.83     29.38     48%
Aviva     11.136     18.484     66%

Experts told moneycontrol, that ULIPs will give good returns only in the long-term, irrespective of market levels and for the short-term, mutual funds will do fine. Given that ULIPs are good for the long-term, experts suggested tips to make the most of ULIP investments in this bull run.

1. Stay invested for the long-term - at least seven years
Chief Investment Officer, ICICI Prudential Life Insurance, Puneet Nanda told moneycontrol, "Life insurance, and hence ULIPs, should be viewed as a long-term investment. Hence, any person buying such a product must do so, with a long-term horizon, say 5-7 years at the least, in which case, the immediate level of the markets do not make a huge difference."

Head of Marketing at HDFC Standard Life Insurance, Sanjay Tripathy agrees, "There is never a good or a bad time for investing in equity funds of ULIPs, if you are looking to remain invested for a long period (more than 10 years)."

1-year     3-year     5-year     7-year     10-year     15-year     20-year
Probability of loss     10/26     5/24     3/22     3/20     1/17     0/12     0/7
Avg Return     27%     18%     17%     17%     18%     19%     17%




The table above shows the relationship between the period of investment and the chances of loss. For instance, had you invested in the Sensex for any one year period between 1979 and 2005, in 10 out of those 26 years, you would have lost money. But had you stayed invested for more than 10 years, your chances of loss would be almost zero. And that, at an average return of 17-18% per annum.

For a complete analyses of the table, click here.

Nanda adds, "As ULIPs are a long-term investment, the underlying funds are also managed with the philosophy of delivering long-term risk adjusted returns."

2. Invest systematically
Certified Financial Planner Kartik Jhaveri suggests, "I would say that for any equity investment of less than seven years, mutual funds are better options. ULIPs are good if you are looking at a time horizon of more than seven years. And more so, I would recommend regular investment."

Just like a systematic investment plan, SIP, is useful for rupee cost averaging in a mutual fund scheme, the same can be applied to ULIPs. Says Nanda, "We encourage our customers to invest regularly, in a monthly/quarterly mode, which works as a systematic investment plan and enables them to reap the benefits of the highs and lows of the market."

3. Don’t be tempted by a short-term exit option
Apart from the fact that returns from equities even out in the long term, Jhaveri gives more reasons why a ULIP makes sense for a longer time horizon, "In ULIPs, the administrative costs are collected upfront from the first year’s premiums. These costs would be recovered only in a longer period and hence it makes sense to hold on for the long-term."

While insurance agents may convince you that you can withdraw after a period of three years, Jhaveri advices that its best to put off the temptation to exit.

Moneycontrol did a bit of number-crunching, to find out how long it takes for charges to be recovered. Even if your fund grew at 10% a year, every year, it would still take you anywhere between 3 and half to 5 years to recover your premium amount, let alone get returns. So you would make profits only after that time period. Of course, if your fund grows faster than 10%, the breakeven would happen faster.

4. Watch your risk profile, not market movement
Tripathy says, "For effective planning, one has to understand the current and future financial goals, risk appetite and portfolio mix. Once this is done, the next step is to allocate assets across different categories and systematically adhere to an investment pattern."

This also means that, if you think you have made enough in equities and want to move to a safer option, you can always switch to a debt option.

Nanda agrees, "The rules which apply to any person is - to understand his/her risk profile and time horizon and then invest with a company, that they are comfortable with." Moreover, Tripathy advices that investors should look at their lifestage needs before choosing their ULIP.

5. Look at product features
Tripathy says, "For good long-term value, the investors should look at product - features, flexibility and the charging structure, particularly the fund management charges. Investors should also keep in mind the past performance of the fund, with respect to benchmark indices and the quality of the stocks in the portfolio."