Charges in ULIPs & Mutual Funds

My insurance agent told me that There are many internal charges in MF which are charged by MF companies but these charges are not visible to Normal investor.

He suggested : In case of ULIP, there are 2 things :

– charges are completely transparent then MFs
– And in long Term (10-15 yrs), ULIPs are cheaper than MFs in terms of charges.

Please suggest and draw some clear picture about charges.

-vivek


Dear vivek, there is totally opposite picture what ur Insurance agent had advised u. Let me explain.
In case of MFs there r only 3 types of charges applicable –
1. Entry Load – It can be avoided if u invest directly to ur MF bypassing ur MF agent.
2. Exit Load – It can also be avoided by remaining invested for certain time period in that particular plan.
3. Fund Management Charge – It`s charged as a %age of total assets under the plan. Normally it varies from 0.25% to 2.5% depending upon type of funds (Debt to Eq.) as well as expertise of fund co. for a same set of MF plans, lower FMC Plan is always advisable for investment.

In case of ULIP following 4 types of charges r applicable.
1. Prem. allocation Charge – It may vary from as low as 1% to as high as 65-70% of ur first year prem. & reduced year after year or may remain same at a constant level say 4% or 5%.
2. Mortality Charges = It`s the basic cost of insurance & again it varies among Ins. cos.
3. Policy admin charges – Some ULIPs charge as low as 20 Rs. per month where as some charge as high as 200-300 Rs. per month. Again not constant among Ins. cos.
4. Fund Management charges – From 0.5% to 2.5% depending upon the type of Fund (debt to Equity).

From the above list u can judge urself that in case of MFs there is only 1 charge FMC, which u `ll have to pay but in case of ULIPs there r several charges & no common benchmark is there to see the impact of these charges. I do hope the message is clear to u.

Thanks

Ashal…

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2 Responses to Charges in ULIPs & Mutual Funds

  1. Sharesher says:

    Great work, Ashal. I think we are all blessed to have such a intelligent analyst of Funds and Insurance beside us. Thank you God for making Ashal, my friend. thank you Ashal. Keep up the Good work. Srikanth Shankar Matrubai, http://goodfundadvisor.blogspot.com

  2. zarir wadia says:

    HI,Ashal,a very helpful explanation. The insurance regulator must clamp down on such insurance brokers and come out with some concrete regulation as SEBI has done for MFs.Regards,Wadia

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