I read with interest Genecia Luo’s interview with Lorna Tan which was published in the Sunday Times yesterday.

Inside the article, she was quoted as being “a conservative investor” and her portfolio consists mainly of insurance products.

These include a whole life policy which her mum bought for her when she was born, and two investment-linked insurance plans (ILP) which are invested in China, India and Singapore funds.

I want to point out to all my readers here that ILPs are definitely not a conservative investment!

Just because a policy is purchased as an insurance product does not mean it is low risk. Depending on the underlying funds that the ILP invests in, the policy can be as high risk as investing in stocks and shares. In the worst case scenario, the value of the funds can dwindle down to zero (if they perform badly) after paying off the mortality charges.

The 5% and 9% projections that you see in the benefit illustration are only projections and nothing else. They can be misleading and seriously, MAS should make it mandatory to include two columns for -5% and -9% as well.

There appears to be a mis-match between Genecia’s risk profile and what she is investing into.

I have seen many similar cases of conservative investors who have been exposed to more risks that they had expected because they had wanted to buy some life insurance but were sold an ILP instead of a traditional product.

Genetia herself mentioned her worst investment to date was buying a single premium ILP in 2006 for $10k, and subsequently selling it in 2009 for only $500. This is a 95% loss in just three years!

I hope Genetia knows (or someone can point out to her) the risks she is being exposed to.

Lastly, I want to clarify that I’m not bashing ILPs in general here but more to highlight that people need to know what they are buying or have bought. Because investment and insurance products are long term in nature, you don’t want to be in for a nasty surprise twenty or thirty years down the road because by then, it will be too late to repair the damage.

The NTUC GrowthLink is a single premium Investment-Linked Plan (ILP) that allows you to invest in the Aim Series of funds with a bit of insurance protection against death and total and permanent disability (TPD).

Protection

From age between 0-64, there will be an insurance protection of 105% of the total invested amount for medically standard life. For medically sub-standard cases, the coverage will be a token 101% of the invested amount.  If the value of the units is more than the insurance protection, that will be the amount paid out on death or TPD.

From ages 65 onwards, the payout on death or TPD will be the value of the units or the total invested amount (whichever is higher).

Premiums

The GrowthLink plan is available under cash or SRS. The minimum premium to start off the plan is $5000 with ad hoc top ups of minimum $1000. You can also schedule regular single premium top ups of $250 quarterly, $500 half-yearly or $1000 annually.

Charges

The GrowthLink policy does not impose any fees for the cost of insurance. There is also no initial policy fee but there will be an annual fee of $50 deducted at each anniversary date. If someone invested only $5000, this $50 will be quite high in the first few years (almost 1% of amounted invested.) On the other hand, if the investment amount is $50,000, it works out to be only 0.1%.

Funds are sold at a bid-offer spread of 3.5%. As the policy currently gives bonus units of 0.5% on invested amounts, the effective bid-offer spread will be 3%.  This is higher than online DIY unit trust portals which charge around 2%, but lower than the 3-5% typically charged by banks.

The Aim Series of Funds also have a relatively low annual management fee (about 1%) compared to other unit trusts. At this stage I’m not sure whether the fund manager Schroders will rebate part of the annual management fee back to the fund if it invests into other Schroders unit trusts. The cost structure will be very good if it can do that.

Funds

The funds available under the GrowthLink plan includes not only the new Aim Series, but also NTUC’s previous funds available under their ILP. Unlimited free switching is available for policy holders. The list of funds are as follows:

• Aim 2015 – Annual Management Fee (AMF) of 0.9% p.a.
• Aim 2025 – AMF of 1% p.a.
• Aim 2035 – AMF of 1% p.a.
• Aim 2045 – AMF of 1% p.a.
• Aim Now – AMF of 0.85% p.a.
• Global Equity Fund
• Singapore Equity Fund
• Global Bond Fund
• Singapore Bond Fund
• Growth Fund
• Balanced Fund
• Conservative Fund
• Prime Fund
• Trust Fund
• Enhanced Fund
• Takaful Fund
• Money Market Fund
• Technology Fund

I like the life cycle and market cycle idea behind the Aim Series of Funds, although how well the fund performs (relative to other life cycle funds out there) will ultimately depend on the skill of the fund manager in implementing their market cycle analysis.

NTUC Income yesterday launched their Aim Series of funds, a collaboration between them and Schroders Asset Management.

The Aim Series of funds aims to take away the complexity of investment from the consumer, by offering a choice of 5 life cycle funds:

• Aim Now
• Aim 2015
• Aim 2025
• Aim 2035
• Aim 2045

The funds will invest in a mix of equities, bonds and other assets such as commodities and property.

Essentially, you will just need to select the fund that fits the target year when you need it. For example, someone who plans to retire in the year 2035 can simply invest in the Aim 2035 fund.

The fund manager will manually adjust the asset allocation of the underlying assets of the funds at different points of time so that the risk of the portfolio gets lesser as it approaches the target year.

While there are currently a few other life cycle funds in the market right now, how the Aim series is different is that the fund manager (Schroders) will also adjust the asset allocation according to the market cycle.

Depending on their views of whether it is an economic slowdown, recession, recovery or expansion, they will overweight or underweight specific sectors accordingly. If the fund manager can perform this role well, it will deliver extra returns to the fund compared to a normal life cycle fund.

For the Aim Now fund, it will target to return a distribution of 4% every year.

The Aim series of funds will be available on NTUC’s newly launched Investment-Linked insurance products (ILP), VivoLink and GrowthLink. More on the cost structure of VivoLink and GrowthLink in a later post.