Stock,market,and,guaranteed,NA business, insurance Stock market and guaranteed NAV never goes together

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Whenever there is a statement aboutanything in this world, regardless of who has said it, do not believe it. Butto analyse it and know the truth is wisdom (Kural: 423): Thiruvalluvar, acelebrated Tamil poet. Sankaran, a 28-year old civil engineerworking with a multinational company in Chennai had invested all his money instocks, mutual funds and ULIPs. When the market was at 20,000 levels, hisportfolio was showing huge profits. However, he lost heavily during the marketcrash. Sankaran is just wondering if he had en-cashed all his investments whenthe market was at 20K, he would have been a happy man today.While Sankaran was blaming the stock marketfor his misfortune, he saw an advertisement in a newspaper. It was about a newULIP scheme that guaranteed the highest NAV for first 7 years of its maturity.The scheme says that even if the stock market crashes subsequently the investorwill get the highest NAV. Guaranteed.Sankaran thought this is what he wanted ata time when all his investments were in the dumps. He could not believe hiseyes. He checked the printed brochure and the scheme details on the respectiveinsurance company's Website. It all confirmed that the highest NAV isguaranteed. He wanted to sign up for one such policy with a huge premium.However, before signing up the policy he wanted to know, 'how could theyguarantee the highest NAV?'He was not satisfied with the answers hegot from his friends and relatives who he spoke to. So he got in touch with aprofessional financial planner for better clarity. If you too are looking formore clarification on 'highest NAV assured schemes', do read on...When they say the highest NAV is assured weassume the highest stock market related return is assured. Is that assumptionright? If that assumption is right then there are some points to ponder over:Who gives this guarantee? Stock marketshave crashed by more than 50 per cent during the downfalls in the year 2000 and2008. If somebody could have given guarantee of highest stock market returns,they could have become bankrupt. Again during the first 7 years of the policythe stock market could meet similar downfalls. Assume someone has gotexceptionally extraordinary ability to predict the stock market and moved outfrom the stock market when it reached its peak. S/he will not work for aninsurance company. S/he will be on her/his own and making money withoutrevealing this secret to the entire world. Why didn't they provide this highestNAV assurance earlier? Why are they not providing this assurance in their otherschemes? So far six insurance companies havelaunched this kind of 'highest NAV assured schemes'. They all are assuring thehighest NAV. There is no doubt about it. But the fine print is they assure thehighest NAV of their schemes, not the highest stock market related returns. Ifyou assume that there is no difference between highest NAV and highest stockmarket returns and, both are one and the same, then you are wrong. They are different.These funds need not invest all your money or any of your money in the stockmarket. They may invest everything or most of your money in the debt market. Sodo we get stock market related returns on these schemes? No.In order to make good the highest NAV assurance, a major portion of your moneywill be invested in the debt market securities for most of the time period. Adebt fund is expected to deliver around 8 per cent to 10 per cent per annum.Therefore highest NAV assurance is not rocket science. Even a novice can launcha highest NAV fund and keep on investing the money collected only in bank fixeddeposits. Studies reveal that, whenever a product isre-launched with a fancy idea, buyers tend to forget the earlier pitfalls ofthe product and go after the fancy idea irrespective of the continuing pitfall.The same investors who have realised the entry level charges (to the extent of20 per cent of first year premium) are high in ULIPs and rejected them, are nowagain after the ULIPs now because of the fancy idea: highest NAV assured,irrespective of the still continuing high entry level charges.Here are some simple investment rules: If you are looking for stock market-relatedreturns, you can invest in equity mutual funds and stay invested for 5 years ormore. If you invest in tax saving mutual fund you will get tax benefits also.These funds have no entry charges. If you are looking for an insurance cover,you can go for pure term insurance policies. In fact term insurance and SIP inequity funds would be a good alternate to the high cost ULIPs. If you are the kind of investor who islooking for assured returns, you can invest in PPF, NSC, or Bank FDs. But please keep in mind that stock marketand guarantees never go together.