It is a generally accepted notion that unit-linked insurance plans (Ulips) are not investorfriendly due to their relatively higher charges and lack of flexibility in exiting from a policy, apart from shifting from one sub-fund to another. It is usually recommended that investments should be executed through mutual funds (MFs), and for matters of insurance coverage, you should buy term insurance.
This view is correct. However, today we will look at certain other aspects of Ulips. If you are approached to buy a Ulip, or if you are considering one and want to compare it with mutual funds, then here are the things you should be looking at.
Factors For Comparison
The most important element for comparison, is the charges on the product. You may say performance is most important as that is what you get as returns, net of charges. However, future performance is by definition, unknown. You can look at historical performance for only getting a perspective.
If a Ulip fund is underperforming, you can shift from one fund to another like from equity to debt, but it is difficult to exit from the product.
Charges are the biggest contention between Ulips and mutual funds, and it is something measurable.
Quantifying Charges
In Ulips Long ago, Ulips came with very high front-loaded charges, which was deducted from the premium that you paid, and was passed on to the intermediary. Even now, there are front-loaded charges that are on the higher side.
From the earlier days of excessive front-loaded charges to current times of relatively-lower-but-still-onthe-higher-side charges, there was a regulation passed by the Insurance Regulatory and Development Authority of India (Irdai) in 2010. Rather than putting a cap on frontloading per se, the cap was put on overall charges. This was referred to as "reduction in yield".
This story is from the {{IssueName}} edition of {{MagazineName}}.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
Already a subscriber ? Sign In
This story is from the {{IssueName}} edition of {{MagazineName}}.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
Already a subscriber? Sign In
Gold ETFs And FoFs
While Indians love to invest in physical gold, even mutual funds offer the option, but in paper format.
PLANNING TO BUY CHILD INSURANCE? THINK TWICE
Child insurance plans combine insurance and investment but often offer low returns due to high costs, making a combination of a term insurance cover and mutual fund a better option for securing your child’s higher education needs
How Do You Define Happiness?
Money does buy happiness, but after a while, the appeal fades. We talk about our relationship with money, but, maybe, it’s time to revisit our relationship with happiness
Avoid Crypto As It Is Highly Volatile
I am 22 years old and have recently started working. I want to invest a small portion of money in cryptocurrency. How should I go about it? Does it require a huge capital investment?
Invest Right, Don't Speculate
The lure of high returns and quick gains from equity tips, cryptocurencies, and equity F&O can be enticing. But remember, return of capital is more important than return on capital
The Wedding & Budget: Is Minimalist Trend The Right Knot For You?
Indian weddings are known for their pomp and grandeur, but minimalist weddings are also in vogue now. Dia Mirza was one such celebrity who went for a minimalist wedding. If you also want to keep things minimal on your big day, here’s how to do it
Here's How To Buy An ETF?
Mutual funds are the preferred choice for retail investors. However, they come at a cost and fund management risk, apart from other risks. A smarter alternative is to invest through ETFs.
How Passive Funds Help Diversify
Passive funds provide a simple way to invest in broad markets as well as in specific themes and sectors, making them ideal for an investor's satellite portfolio
The Rise Of Passive Funds
The popularity of passive funds among retail investors has risen post Covid, and fund houses are out with many variations of ETFs and index funds. Does this category present a new opportunity for investors?
Tax Reforms: What's In Store?
The government is working on reforming the existing Income-tax Act, 1961. The impending reforms have raised many questions in the minds of taxpayers. Will the old regime and deductions be done away with? Will it really simplify your life? What's the need for these reforms? We try to answer these and other questions regarding tax reforms