You should always build a Diversified Investment Portfolio.
This could be done by striking a balance between Equity & Debt Investment Instruments.
Will HDFC Life Capital shield Plan provide the best of both Worlds?
This in-depth analysis will give you a lead on whether you should consider this Plan in your Investment Portfolio.
Table of Contents:
1.)What is HDFC Life Capital Shield Plan?
2.)Features of the HDFC Life Capital Shield Plan
3.)Eligibility Criteria of the HDFC Life Capital Shield Plan
4.)HDFC Life Capital Shield Plan at a Glance
5.)Benefits in detail under the HDFC Life Capital Shield Plan
- Maturity Benefit
- Death Benefit
- Loyalty Additions
- Partial Withdrawals
6.)Various Charges under the HDFC Life Capital Shield Plan
7.)A Grace Period, Discontinuance & Revival of the HDFC Life Capital Shield Plan
8.)Free-Look up period of the HDFC Life Capital Shield Plan
9.)Surrendering the HDFC Life Capital Shield Plan
10.)Advantages of the HDFC Life Capital Shield Plan
11.) Disadvantages of the HDFC Life Capital Shield Plan
12.) Research Methodology
13.) IRR Analysis of the HDFC Life Capital Shield Plan
14.) HDFC Life Capital Shield Plan Vs. Other Investment Products
15.)HDFC Life Capital Shield Plan Vs. Pure Term Insurance + NSC / ELSS
16.) Final Verdict on the HDFC Life Capital Shield Plan
What is HDFC Life Capital Shield Plan?
It is a Unit Linked, Non-Participating, Life Insurance Plan (ULIP).
HDFC Life Capital Shield Plan is an investment-cum-insurance product that offers the potential for higher returns, by investing a part of your money in equity & the balance in debt. The allocation of your money to debt funds shall systematically increase over time to protect your capital.
Features of the HDFC Life Capital Shield Plan
- You need to pay premiums only once or for a limited period of 5 years.
- Dual benefit of Market return & at the same time providing Life Insurance coverage.
- Loyalty Additions to boost Fund Value from the end of the 6th Policy Year onwards.
- Assured Maturity benefit to protect your investment from market risk.
- Option to make Lump Sum partial withdrawals from your Funds after the first 5 years of your policy term.
Eligibility Criteria of the HDFC Life Capital Shield Plan
The basic eligibility criteria we need to know to enter this plan are mentioned at a glance below;
|Entry Age||8 years||60 years|
|Age at Maturity||18 years||70 years|
|Premiums||Single Pay||Single: Rs. 48,000||No Limit|
|Limited Pay (5 years)||Annual: Rs. 48,000
Half-yearly: Rs. 24,000
Quarterly: Rs. 12,000
Monthly: Rs. 4,000
|Sum Assured – Single Premium||Entry Age less than 45 years||125% of Single Premium|
|Entry Age equal to 45 years and above||125% of Single Premium|
|Sum Assured – Limited Premium||Entry Age less than 45 years||7 times Annualized Premium||10 times Annualized Premium|
|Entry Age between 45-54 years||7 times Annualized Premium|
|Policy Term||10 years|
|Premium Payment Term||Single
Limited: 5 years
HDFC Life Capital Shield Plan at a Glance
There are 2 Funds available under the Capital Shield Management strategy:
- Capital Growth Fund – An Equity-oriented Fund to provide medium to long-term capital appreciation with a high level of risk.
- Capital Secure Fund – A Debt-oriented Fund to provide capital preservation and safety with a low level of risk.
The Fund details are mentioned in the table below.
|Entry Age (in years)||45||45-54||45||45-54|
|Sum Assured Multiple||10 x Annualized Premium||Between 7 to 8 x Annualized Premium||Between 9 to 10 x Annualized Premium||7 x Annualized Premium|
|1.25 x Single Premium||1.25 x Single Premium||1.25 x Single Premium|
|Policy Year||Capital Growth Fund||Capital Secure Fund||Capital Growth Fund||Capital Secure Fund|
|Fund Name||Money Market Instruments Cash & Deposits & Liquid Mutual Fund||Government Securities, Fixed Income Securities||Equity||Risk & Return Rating|
|Capital Growth Fund||0-20%||0-20%||80-100%||Very High|
|Capital Shield Fund||0-20%||80-100%||0||Moderate|
Benefits in detail under the HDFC Life Capital Shield Plan
On maturity of the policy, provided all due premiums have been paid, the Life Assured will receive higher of:
- Fund Value
- Assured maturity Benefit (as defined below)
Assured Maturity Benefit = 101% of Total premiums paid to date less Partial withdrawals made to date.
In case of Life Assured’s unfortunate demise during the Policy term, provided all due premiums have been paid, the nominee will receive the “Sum Assured on Death”.
The “Sum Assured on Death” shall be the highest of the:
- Sum Assured less an amount for Partial withdrawals made if any
- Fund value
- 105% of total premiums paid till the date of death
Loyalty additions (as a percentage of the average fund value) will be added to the fund value in the form of additional units from the end of 6th policy year onwards, provided all due premiums have been paid. The Loyalty Additions will be added for both Single Pay and Limited Pay policies.
|Policy Year||Loyalty Additions (as a % of average Fund Value)|
You can make Lump Sum Partial Withdrawals from your funds after 5 years of your policy. The minimum withdrawal amount is Rs. 10,000.
Various Charges under the HDFC Life Capital Shield Plan
Premium Allocation Charge
This is a premium-based charge. After deducting this charge from your premiums, the remainder is invested to buy units. The charge varies for Single & Limited pay. It depends on the premium paying year & premium paying mode& it ranges between 3% & 9%.
Fund Management Charge (FMC)
The daily unit price already includes the fund management charge of 1.35 % p.a. of the fund value (0.50% p.a. for the Discontinued Policy Fund).
Investment Guarantee Charge
The daily unit price already includes the Investment Guarantee charge of 0.5% p.a. of the fund value (over & above the Fund Management Charge).
Policy Administration Charge
This charge is a percentage of the annualized premium/single premium. The charge will be deducted monthly to provide administration for your policy. It ranges between 0.12% & 0.39% per month of the annualized premium increasing at 5% per annum on each Policy Anniversary thereafter.
Mortality & other Risk Charges
The amount of the charge taken each month depends on your age & level of coverage. This charge is applicable for providing you with the risk cover.
Partial withdrawal Charge
The Policyholder will not be charged for the first 4 Partial withdrawal requests in each policy year. Thereafter, any partial withdrawal request from the Policyholder will attract a charge of Rs. 250 per request. However, if the request is executed through the Company’s web portal the Policyholder will be charged Rs.25 per request.
Any Policy alteration request initiated by the Policyholder will attract a charge of Rs. 250 per request.
This charge depends on the year of discontinuance and the annual premium amount. There is no charge after 5th policy year.
Inference from the charges:
These charges are levied to manage the investment fund & to cover administrative expenses. Investors need to understand the various charges associated with ULIPs and how they can impact their returns. Partial Withdrawal charge, Discontinuance charge, and Miscellaneous charge will bring down your overall yield.
A Grace Period, Discontinuance & Revival of the HDFC Life Capital Shield Plan
This plan has a grace period of 15 days for the monthly mode and 30 days for other modes chosen by the policyholders.
Discontinuance of Policy during the lock-in-Period (5 years) –
For other than single premium policies, upon the expiry of the grace period, the fund value after deducting the applicable discontinuance charges shall be credited to the discontinued policy fund and the risk cover and rider cover, if any, shall cease.
Discontinuance of Policy after the lock-in-Period (5 years) –
The policy shall be converted into a reduced paid-up policy with the paid-up sum assured i.e., the original sum assured multiplied by the total number of premiums paid to the original number of premiums payable as per the terms and conditions of the policy.
You have the option to revive a discontinued policy within three consecutive years from the date of the first unpaid premium.
Free-Look up period of the HDFC Life Capital Shield Plan
In case you do not agree to any of the terms or conditions of the HDFC Life Capital Shield Plan, you have the option of returning the policy, within 15 days from the date of receipt of the policy. The Free Look period for policies purchased through distance marketing or online will be extended up to 30 days.
Surrendering the HDFC Life Capital Shield Plan
In the case of Single Premium Policies, the policyholder has the option to surrender at any time during the lock-in period. Upon receipt of the request for surrender, the fund value, after deducting the applicable discontinuance charges, shall be credited to the discontinued policy fund. On completion of the lock-in period of 5 years, the fund value as of date shall be payable.
In the case of other than single premium policies –
Surrender of the policy before the lock-in period – The policy shall continue to be invested in the discontinued policy fund and the proceeds from the discontinuance fund shall be paid at the end of the lock-in period of 5 years.
Surrender of the policy after the lock-in period – The policyholder has the option to surrender the policy at any time after the lock-in period. Upon receipt of the request for surrender, the fund value as of the date of surrender shall be payable.
Advantages of the HDFC Life Capital Shield Plan
- It is a Single/Limited Premium Policy & provides Life Insurance Coverage for the whole policy term.
- There is convenience in choosing the premium paying mode.
- Even if the fund does not perform well, you will receive the assured benefit.
- The policy has tax benefits as per Sec 80C & Sec 10(10D).
- Partial withdrawals are allowed to meet emergencies Post the lock-in period.
Disadvantages of the HDFC Life Capital Shield Plan
- There is no rider option available under this policy.
- The policy does not allow loan facilities.
- The lock-in period is for 5 years for Surrendering or exercising a Partial Withdrawal facility.
- The various charges under this policy have an impact on its returns.
For further details, you can refer to the HDFC Life Capital Shield Policy Brochure.
HDFC Life Capital Shield Plan offers an opportunity to invest in both Debt & Equity. This part of the analysis helps us to estimate the future investment return using the benefit illustration provided on the HDFC Life website.
The estimated Internal Rate of Return can be compared with other investment options to have better insights.
IRR Analysis of the HDFC Life Capital Shield Plan
The IRR has been worked out based on the benefit illustration given in the Retail brochure of the HDFC Life Capital Shield.
An investor who is 40 years old wants to invest in an HDFC Life Capital Shield policy with a Single premium of Rs. 10 Lakhs and a policy term of 10 years. Given his age, his Sum Assured is calculated as Rs 12,50,000.
On Survival of the policyholder till the end of the policy term – 10 years, he would receive an Assured maturity benefit or Fund value whichever is higher.
The Assumptions for Comparison:
|Male||40 years old|
|Sum Assured||Rs. 12,50,000|
|Policy Term||10 years|
|Premium Paying term||Single Pay|
|Premium||Rs. 10 Lakhs|
The Assured Maturity Benefit is 101% of the premium paid. Here, the assured maturity benefit for Rs. 10 lakhs premium is Rs. 10,10,000.
The Fund value at the assumed rate of return of 4% & 8% is Rs. 11,02,973 & Rs. 16,38,269 respectively. Since the fund value is higher than the Assured Maturity Benefit, the policyholder will be receiving the fund value.
Please note, these assumed rates of return are not guaranteed returns and they are not the upper or lower limits of the return that you might get back, as the value of your policy is dependent on several factors including future investment performance.
|At 4% p.a.||At 8% p.a.|
|Age||Year||Annualized premium / Maturity benefit||Death benefit||Annualized premium / Maturity benefit||Death benefit|
The above table displays the Internal Rate of Return under two scenarios. The worst-case scenario of the assumed rate of 4% yields an IRR of 0.98% & the best-case scenario of the assumed rate of 8% yields an IRR of 5.06%.
The reason for the low yield is, the investment is made with the net premium after the deduction of various charges. And most of the charges continue throughout the period.
An important point to be noted here: In this illustration, the maturity benefit does not qualify for tax benefit under Sec 10(10D).
The exemption under clause (10D) of section 10 of the Act will not apply with respect to any ULIP issued on or after the 1st February 2021, if the amount of premium payable for any of the previous years during the term of the policy exceeds Rs 2.5 lakh.
The premium denotes the aggregate premium of all the ULIPs held by the taxpayer. So, even if you buy multiple policies, you must pay tax when the aggregate premium reaches the threshold of Rs. 2.5 lakhs in a financial year.
HDFC Life Capital Shield Plan Vs. Other Investment Products
HDFC Life Capital Shield Plan does not hold well in terms of Maturity Benefits & also the policy lacks a liquidity option in the initial years.
We can have a comparison with other Equity Instruments & analyze how far it has an edge over other investment options.
HDFC Life Capital Shield Plan Vs. Pure Term Insurance + NSC / ELSS
We can assume the Sum Assured & the premium as in the illustration. A life insurance cover for a Sum Assured of Rs. 12,50,000 would cost Rs. 49,500 for a Single pay premium of 10 years of coverage. So, we are left with an amount of Rs. 9,50,500. This lump sum amount can be invested based on your personal risk appetite.
National Saving Certificate (NSC):
Risk-averse individuals can choose NSC. The NSC VIII Issue has a maturity period of 10 years and offers a fixed interest rate of 7% p.a., compounded annually.
The minimum investment amount is Rs. 100, and there is no maximum limit on the investment amount. The interest earned on NSCs is also eligible for tax deduction under Section 80C of the Income Tax Act, up to a maximum of Rs. 1.5 lakh per financial year. Only the final year interest is taxed as Income from Other Sources.
Equity Linked Savings Scheme:
Individuals who are ready to take risks can opt for the ELSS Mutual Fund. It offers the dual benefit of tax deductions (Sec 80C) and wealth accumulation over time.
It has the potential to yield high returns among other 80C products & has the shortest lock-in period of 3 years. It is taxable only at the time of redemption. For a Holding period of more than 1 year, it is considered a Long-Term Capital Gain (LTCG). LTCG up to Rs. 1 Lakh in a financial year is exempt from tax. Over & above the limit is taxed at 10%.
The Assumptions for Comparison:
|Pure Term Insurance Policy:|
|Policy term||10 Years|
|Single Premium||Rs. 49,500|
|Balance amount for investment||Rs. 9,50,500|
|Term Insurance + NSC||Term insurance + ELSS|
|Age||Year||Term Insurance premium + NSC||Death Benefit||Term Insurance premium + ELSS||Death Benefit|
The maturity value given in the table is the post-tax value. The Pure Term + NSC offers a 6.25% return whereas the Pure Term + ELSS offers 10.69%.
A Debt Instrument – NSC yields better than the HDFC Life Capital Shield Plan & in NSC, the maturity is assured. Equity instrument – ELSS yields inflation-beating returns & also offers liquidity. Overall, these rates are comparatively better than the HDFC Life Capital Shield Plan.
Final Verdict on the HDFC Life Capital Shield Plan
HDFC Life Capital Shield Plan provides an opportunity to invest in both Equity & Debt related instruments and also offers a minimum guaranteed return. In case of poor performance of the fund, you will receive the assured Maturity benefit. But the Assured Maturity Benefit is just 101% of the total premium paid which will not suffice to meet your Financial Goals.
You can’t enjoy the benefits of both worlds of Equity & Debt to the full extent because of the low yield compared to another instrument. So, HDFC Life Capital Shield Plan can’t be a part of your diversified portfolio.
It is advisable to build a Well-Diversified Investment Portfolio that takes into account your Financial Goals and Risk Tolerance.
You can consult your Financial Advisor for assessing your risk tolerance, estimate the life cover & drafting a custom-made Financial Plan.