Highest NAV guarantee plans
Have the recent ads about Highest NAV on TVs and hoardings captured your attention? Highest Net Asset Value guaranteed Plans are the flavor of the season. Many insurance companies are offering these products.
Is it possible to get best returns with the Highest Net Asset Value guaranteed plans? Just check out.
Birla Sunlife Platinum Plus III, SBI Life Smart ULIP, Tata AIG Invest Assure Apex, Bajaj Allianz Max Gain, Reliance Highest Net Asset Value Guarantee Plan, LIC Wealth plus are some of the products that are available under this segment in the market. More or less all these plans have similar features and costs.
What they offer?
These are basically Unit Linked Insurance Plans akin to the regular ULIPs with an additional feature that guarantees Highest Net Asset Value during the term of the policy.
They all have limited premium paying term of 3 years with insurance protection up to 10 years and LIC Wealth Plus is of 8 years only. Minimum sum assured is five times the annual premium.
All these plans promise to pay the Highest NAV reached in the first 7 years of their term 10 years or the NAV at the end of the maturity date whichever is higher. The Net asset value calculation will be based on daily basis.
Highest Net Asset Value guaranteed Plans are capital guarantee products hence there is no worry of losing capital.
How they invest?
Highest NAV guaranteed Plans invest in debt and equity in the range of 0-100 percent. These products use Constant Protection Portfolio Insurance, CPPI kind of strategies to protect the capital. The portfolio will be managed dynamically between equity and debt such that the highest NAV achieved is locked by shifting a portion of equity into debt. Thus final or maturity value is equal to the highest net asset value achieved so far.
Will they deliver?
The insurance companies that offer the funds claim that investors stand to benefit with these plans as they get the upside of equities and the surety of capital protection. So the retail investor may think of his returns will be on par with the Sensex and Nifty.
Let us see an example, a fund has recorded a highest NAV of Rs 40 in the sixth year after the scheme has commenced. From then onwards the fund must have to maintain the minimum NAV at Rs 40.
Assume that a correction has occurred in the markets and the NAV falls down to Rs 20.
As this is a Highest Net Asset Value guaranteed Plan, the company must have to pay the balance value of Rs 20 (the highest NAV achieved so far less the NAV by the end of maturity which is Rs 40-Rs 20) from its own kitty as it promised. No company will dare to take the risk of such a heavy loss.
To prevent such adverse conditions, the fund manager starts giving more exposure to debt than equity.
In fact the fund manager doesn’t wait till the sixth year, as mentioned in the above example. He starts converting whatever the returns that he got from the equity into debt from the first year itself.
As said above, equity assets will be converted into debt. The reciprocal may not be possible when equity markets fall to move debt funds into equity as the assets locked to assure highest NAV achieved till then.
There is no mention in any of these products about the fund allocation. So nothing can stop the fund manager to have a substantial debt component even in earlier years. Thus an investor may lose the opportunity of growth an equity fund can deliver in such a long period especially in a growing economy like India.
Are they best returns?
Returns should be calculated after deducting the costs. How much the costs involved in the highest Net Asset Value Guaranteed plans constitute to? With fund management fee, policy administration charges, guarantee charges etc. the costs escalate to 3%.
Average returns on long term equity plans are around 12-15%. Net returns after the costs will be 9-12%. As these funds will have most allocation to debt, it would minimize the returns to somewhere around 7-10%.
Debt funds average return is 6-7%, with fewer costs. More or less the returns on these highest Net Asset Value Guaranteed plans would be on par with debt plans.
Where is the point of waiting for such a long period while investing in equity funds for meager returns?
If you take into account the inflation rate of 6% (2004-2009 average inflation rate, also the days ahead are high inflation prone), the returns are almost zero.
These are the figures calculated assuming the policy holder will stick to the complete term till the maturity. If not the highest NAV guarantee is not his cake. He will be paid the prevailing NAV if he exits after 5 years, if it is before 5 years he should have to bear surrender charges also.
So the solution should be to go for a term insurance, as it is very cheap and ELSS to attain tax saving and reasonable returns.
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Analysis on Nifty with Gann technique
The objective of any kind of analysis is to present better understanding of underlying trend of stock or index. There are plenty of techniques available to study the trends of stocks or other related markets. Every kind of technical analysis presents unique way of understanding things, but each comes up with different annoying tags like “un-certainty”, “hard to implement”, ”not always reliable”, “false signals” or “too broad”.
Well, we don’t have a technique or indicator that directly points you to holy-grail of stock markets. But there must be something, which is better than rest. Yes, there are such techniques.
Today, we are going to look at one of such technique. We will practically implement one of Gann technique, on National Stock Exchange S&P CNX Nifty index and check how it works.
Gann Techniques
In stock markets, few people know Gann techniques and very few implemented it. But till date, Gann’s techniques remain most accurate, stunning and reliable for “some people”. Let’s check whether it is same for us or not. But, before we jump on to chart, we need to understand few things, here are they.
Gann line
In Gann’s world, trend lines are not mere static lines. What does it mean?
You can’t have a concrete line drawn either from top or low of market turns, and wait for markets to seriously react to those lines. Why? The reason is simple, normal trend line considers price level only, not time factor.
Frequency of stock
According to Gann, each stock (even index) vibrates at certain frequency, and reacts in multiple units of its frequency.
Well, it is hard to identify such frequency basing on such an abstract statement. Don’t worry, our studies showing that S&P CNX Nifty is reasonably responding to “frequency 1”, at least on long term charts.
How to draw lines
Gann lines must be drawn from extreme highs or lows of market. More extreme, more the significant result.
What can be an extreme low? Simple, nothing is lower than all time low. So, let’s consider Nifty all time low 775.43 on 04 December 1996. From this point, we need to draw a line, which rises at certain frequency. In our case, it is 1 point per day.
Yes, read the line once again, there is logic. Our line raises its price value one per day (trading day). So on 05 December 1996, our line must be at 776.43 (775.43 + 1). On 06 December 1996, it should be on 777.43.
More lines
The line we have drawn just now is called 1×1, in other words one 1 unit of frequency at 1 Unit of time.
We also want to draw two more lines.
Confused? Here is much better explanation.
Observations
Gann lines on NSE Nifty
Gann lines on NSE Nifty -zoomed in
Look at charts, after long bull market rally (on 8 January 2008, approximately 2777 trading days), our 2×1 line stands at 6327.43. Nifty slightly penetrated and reacted and hit resistance at 6357.10. (All time high, so far)
Confused? Here is simple math.
Again, look at charts, after bear market rally (on 27 October 2008, approximately 2974 trading days), our 1×2 line stands at 2262.43. Nifty slightly penetrated and reacted and took support at 2252.75 (2008 bear market low)
Again, look at chart, after 2009 general election rally and reaction (on 13 July 2009, approximately 3142 trading days), our 1×1 line stands at 3917.43. Nifty took support just one point above it, 3918.75
Conclusion
Wow, results are stunning and significant. However, we are not just limited to those few lines, we can always draw more lines, experiment with different frequecies. Also, you can draw lines from top instead of bottom. If lines are from top, rather than going up, lines should go down (decrease in points, per time unit).
We will try to understand more stock market analysis techniques, as we move on. Meanwhile, experiment with data and let us know what you find.