Is HDFC Life’s Sanchay Plus a sound investment choice? A comprehensive review

HDFC Life Insurance recently launched their new savings cum insurance plan called Sanchay Plus. On the surface, it seems to promise guaranteed returns, lifelong income and other benefits. However, is it really a good investment option or does it have hidden catches? In this detailed review, we evaluate all aspects of HDFC Life Sanchay Plus to help you decide if you should invest in it.

HDFC Life – An overview of the company

HDFC Life Insurance was established in 2000 and has over two decades of operations in the Indian market. As one of the major life insurance providers, it has a large network across the country. However, their claim settlement ratio has been average compared to competitors, though it has shown an improving trend over the years.

HDFC Life focuses on both traditional insurance plans as well as unit-linked investment products. They have worked on expanding their product portfolio with new offerings catering to various customer segments. While the company has sizable presence and resources, investors will need to carefully assess the specifics of individual plans to determine suitability.

Key features of HDFC Life Sanchay Plus

Some of the highlighted features of Sanchay Plus plan include:

• Minimum annual premium starts from Rs. 30,000 with a range of premium payment terms between 5 to 12 years.

• Entry age is 5 to 60 years and maximum maturity age ranges from 18 to 71 years depending on the option chosen.

• Four different benefit payout options are available post premium payment term – Guaranteed Maturity, Guaranteed Income, Life-Long Income, Long Term Income.

• Death benefit provided is higher of Sum Assured, 105% of premiums paid or 10 times annualized premium. Sum Assured varies according to entry age.

• Rider benefits of Accident Disability and Critical Illness rider can be added for extra coverage.

On the surface, these features make the plan look like a promising long term investment choice. However, the key would be to examine the real guaranteed returns on maturity. Advertised benefits don’t always translate into tangible monitory value.

Comparing the four benefit options

Let’s analyze each benefit variant of Sanchay Plus using illustrative examples to see how they actually perform:

Guaranteed Maturity Benefit

This option offers a lump sum on policy maturity. Say a 30 year old pays Rs. 1 lakh annual premium for 20 years. The guaranteed sum would be Rs. 22.56 lakhs on maturity. However, effective annualized returns work out to a modest 5.32% after accounting for inflation and taxes. Not a very rewarding option.

Guaranteed Income Benefit

Here the proceeds are paid as guaranteed income after the policy term. With same premium and 13 year term, annual income of Rs. 2.16 lakhs will be received for 12 years from 14th year. This provides returns of 5.65% annually, still not very impressive given the long lock-in period.

Life-Long Income Benefit

This seems attractive offering income until age 99. But one has to be 50-60 years to opt for it. With premiums paid for 10 years, annual payout of Rs. 1.03 lakhs starts from 12th year, providing returns of 5.51% per year only. Not a very tax-efficient or inflation-beating option.

Long Term Income Benefit

Paying premiums for 6 years guarantees income between 30-38 years. But returns remain below 5.5% which again fails to perform better than simpler alternatives like PF over such long tenures.

In summary, while Sanchay Plus provides some income guarantee, effective returns across options disappointingly stay below 6% even after locking money for decades. Considering guaranteed return is the linchpin of any savings product, this does not make a strong case.

Comparing returns with other popular options

Let’s contrast Sanchay Plus returns with simpler and transparent alternatives:

• Public Provident Fund (PPF): Offers 7.1% tax-free returns annually with complete capital protection. 15-year long term provides nearly double the returns of Sanchay Plus.

• Equity Mutual Funds: For investment periods of 10 years or above, even conservative equity mutual fund plans have historically delivered annualized returns of 10-12% which significantly outpaces Sanchay Plus returns.

• Post Office Monthly Income Scheme: 6.7% returns with no lock-in provides higher post-tax value compared to HDFC plan.

• Five-Year FDs: Offering 5% returns annually, FDs have lower risk with flexibility to withdraw funds on maturity unlike Sanchay Plus long lock-ins.

It is evident Sahchay Plus cannot match popular small savings or investment options when it comes to real benefit value. Its guaranteed income tag loses significance compared to superior guaranteed and non-guaranteed alternatives available.

Other disadvantages of HDFC Life Sanchay Plus

Aside from underperformance on returns, the plan also suffers fromcertain other limitations:

• High ongoing charges and commissions: Unlike direct investment plans like EPF, MF, here 40-50% of premium typically goes towards agent commissions itself reducing actual returns further.

• Low liquidity: Very limited flexibility as funds are locked until the income payout period starts post long premium paying terms.

• Inflation risk: Income received remains constant as per plan whereas actual inflation can significantly erode its value over time up to 30-40+ years till payout ends.

• Tax inefficiency: Premium paid as well as maturity/income receipts attract applicable income/capital gains tax slabs making post-tax returns even lower compared to simpler tax-efficient vehicles like PPF, ELSS etc.

• Complicated structure: The jargon of “guaranteed benefits”, income options etc. obscure the actual value proposition from view of average investors who may find returns disappointing later.

• Reputation risk: Minor slip-ups cannot be ruled out for any insurer in serving long term regular income commitments as markets, regulations and company dynamics undergo changes over decades.

In light of these, Sanchay Plus can be considered more of an insurance policy marketed aggressively as investment rather than a financially prudent long term saving-cum-insurance vehicle for most goal-oriented investors.

Verdict – Is HDFC Life Sanchay Plus a buy?

After our comprehensive evaluation, following are the key takeaways on whether to invest in this savings plan or not:

• Effective long term returns delivered by various options stay below 6% even after locking money for 10-20 years or more, which is clearly sub-optimal given alternatives.

• The plan’s nuanced features, guarantees and income options mask the actual poor returns despite high costs and long commitments involved.

• Simpler markets-linked investments or small savings deliver higher real post-tax returns along with better liquidity, transparency and taxation treatment.

• For protection needs, adequate term insurance covering mortality and critical illnesses is more cost efficient than opting for this plan primarily for its insurance features.

• Considering the average expertise most financial advisors have in investments rather than pure insurance, there is a conflict of interest driven bias while recommending this product.

Therefore, while HDFC Life Sanchay Plus may provide some feelings of comfort as a savings-linked insurance plan, it should certainly be avoided for core investment needs where superior options are easily available. Investors are strongly recommended to opt for simpler and rewarding alternatives better serving long term accumulation goals.

This brings us to the conclusion that HDFC Life Sanchay Plus is not an appealing buy and investors may like to steer clear of committing large amounts for decades in it unless they need its insurance benefits significantly more than investment returns. Opting for directly managed market investments of 5-10 years along with suitable term plan provides a far superior combination.