Tuesday, March 24, 2009

HDFC Young Star Plus

HDFC Young Star Plus

The Young Star Plus (YSP) plan from HDFC Standard Life is another unit linked child plan, the earlier being Young Star. The plan aims to provide financial security to the child in case of the unfortunate demise of the parent/insured. The demise of the insured (i.e. parent) during the policy term leads to the sum assured being paid to the child. However, the policy continues until the end of the stipulated tenure with the insurance firm paying the premiums.

HDFC YSP offers a wider range of six investment options, across equity and debt segments to the policyholder as compared to comparable policies from other insurance companies-Tata AIG InvestAssure II (5 options), ICICI Smart Kid (4 options), Aviva Young Achiever (4 options).
The initial premium allocation charges for HDFC Young Star Plus (60.0% in the first year; 1.0% for the remaining years) are higher as compared to the competition. For instance, in Tata AIG InvestAssure II, the initial charges range from 17.5%-30.0% in the first year and 12.5%-25.0% in the second year. For ICICI Smart Kid, the charges are 20.0% for first year, 5.0% for years 2-5 and 2.0% for years 6-10; the charges range from 5.0%-7.0% for Aviva Young Achiever.
Coming to the charges of each fund, Birla has the lowest allocation charges, but the very high policy administration charges compensate for the same. On a fair basis ICICI Smart Kid has the lowest allocation charges of 20% in the first year compared to the other products being reviewed. HDFC’s charges are the most obscene at 60% of the first year premium, which is a sure negative for most of us.
But YSP’s policy administration charge of Rs 20 per month (pm) is on the lower side in comparison with Smart Kid (Rs 60 pm), InvestAssure II (Rs 38 pm) and Young Achiever (Rs 55 pm which increases by 5.0% every year).

In terms of fund management charges too, Young Star Plus is the most cost-effective at 0.80% per annum (pa) across all fund options. Compared to it, YSP’s peers have higher fund management charges. For example, the fund management charges for Tata AIG InvestAssure II range from 0.90%-1.75% pa, while those for ICICI Smart Kid are 0.75%-1.50% pa. Policy holders in Aviva Young Achiever have to bear charges of 1.00%-1.50% pa.

Furthermore, YSP allows 24 free switches (across options) in a year, which is way ahead of that offered by Aviva (2 free switches), Tata AIG (4 free switches) and ICICI (4 free switches). It also allows the investor to make 6 free withdrawals in a year.

To better appreciate how each child plan stacks up on the expenses front, we have taken the case of a 30-Yr old, non-smoking healthy male who has taken a child plan from all 4 insurers. He pays an annual premium of Rs 10,000 for 15 years. We have assumed that he invests in the most aggressive option (highest equity) of all 4 insurers. We have assumed a growth rate of 10% CAGR (compounded annual growth rate) for all 4 child plans.
Calculations show that Young Star Plus scores over the rest of the lot as far as returns are concerned (assuming that all 4 funds are ultimately invested in the same stocks; the difference in returns is due to the charges). The returns are approximately 23% higher than its nearest competitor. This could be attributed to its premium charges, which is 60% in the first year but tapers down to 1% in the following years and also its lower fund management and policy administration charges.

HDFC Young Star Plus scores over the competition on the following parameters:

Compared to Other Child Plans, HDFC in addition to Death Benefit option also offers Critical Illness Benefit.

Greater flexibility. The plan offers 6 investment options, the highest in our sample.

Higher number of free switches. The plan offers 24 free switches, which is much more than the competition. Although, we do not encourage parents to make frequent switches across options, the plan has nonetheless built in this flexibility.

Lower expenses. The plan has the lowest expenses in our sample. Not surprisingly, the savings in terms of lower expenses adds directly to the returns generated on the child plan.

I always say ULIPs are expensive products with high initial charges. I am not in favour of any child plan . If one has enough term cover that will do. Child plans are long term gambles like ULIPs. How well an insurance company manages your investment part is a gamble. These are all ways to get more money from you. At maturity you will realise that the returns are not great. Better to keep INSURANCE & INVESMENT separate.

I however felt ICICI Smart Kid RICH fund is slightly better. You can compare it with HDFC Young Star Plus also, though ICICI Smart Kid scores over it in many aspects. For instance, HDFC has high allocation charges in first year (60%) compared to ICICI Smart Kid (18%) in a regular ULIP. So you will have lesser units in your coffers in early years, especially in times when sensex is reported at all time low. Please consider for all three important riders (I) Premium Benifit Rider (II) Disablity and Accidental Benifit Rider and (III) Income Benifit Rider. Do not discontinue paying premiums (in case you are opting for regular premium) after three years or so. ULIPs are long term products and prove fruitful only in long term.

Please try to compare Illustrations of following Child Plans & Term Plans from Same Insurance Company.

BIRLA SUNLIFE CHILD DREAM PLAN with MAX. COVER with Minmum GUARNTEED Benifit of Rs.75000/- & Minimum PREMIUM.

KOTAK HEAD Start Future Builder


AVOID those Plans which offer Lower Insurance Cover(10 Times of Annual Premium).
Pleas BUY Current Issue of Outlook Money
( 25th Feb.2009 ). It is KIDS Special & Contains very Usefull Information about Future Secure of Children.

My take is, Go for Term Insurance. They are cheap and then invest in Good Diversified Mutual funds, especially those which offer Insurance Cover.
Among the Funds that Offer Insurance Cover, DWS Tax Saving Fund is the best, as it offers 5 times your Investment as Insurance Cover with no Conditions or fine Print. And, after the Compulsory lock-in period of 3 years, there is no exit load too.
My Fund Picks for your son would be
Birla Sunlife Equity Fund
DWS Tax Saving Fund
Kotak K30 Fund
Reliance Growth Fund

Some Funds like Principal Personal Tax Saver and HDFC Children`s Gift Fund offer Accidental Insurance Cover too and Principal Child Benefit offers Limited Life Insurance Cover.

However, stick to the above funds for Good Gains, definitely better than ULIPs.
Best of luck,
Srikanth Shankar Matrubai

Also visit http://equityadvise.blogspot.com for an indepth Equity Analysis

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