How to choose the best modern day investment tool?

Posted by ankita on February 2nd, 2017

Unit Linked Insurance Plans (ULIPs) are the modern day investment vehicle that offers the dual benefits of investment in the capital markets along with insurance. The new guidelines implemented in 2010 for ULIPs, has now made it easier to invest in them. Compared to the direct mutual fund investments, ULIPs have become more affordable now. However, to gain the desired corpus from ULIPs, you need to hold your account for atleast 10 to 12 years. The online avatar of these investment insurance plans is a low-cost option for these investment insurance plans. ULIPs can be used as a re-balancing tool by the savvy investor. Funding switching from equity to debt and vice versa comes without any tax implication. The earnings are tax-free yet another reason to invest in ULIP plans.

Since ULIP are market based funds, often there are charges associated to them. To choose the best ULIP insurance policy some charge that have to be considered would be as follows:

Premium Allocation Charges

One of the basic things to consider is the premium allocation charges. These charges vary from 2% to 100% of the first premium for different plans. Some companies may project that the premium  allocation charges is nil, but the fact is that they would charge equal amount or more than that through policy administration charges or initial management charges or surrender charges later on. So, you should be cautious about such products and check with the companies. Another important element to decide upon the best ULIP insurance policy.

Policy Administration Charges

These charges are taken by the company to meet various administrative expenses incurred while managing the policy during the whole tenure of the policy. This charge is deducted normally on a monthly basis. It is not covered under premium allocation charges or the fund management expenses. Most of the time this charge is being deducted as a percentage of the fund value or a fixed amount or a percentage of the premium or a percentage of sum assured.

FMC Charges

It is levied as a percentage of the value of assets and is mostly appropriated by adjusting the Net Asset Value. This is a charge levied at the time of computation of NAV, which is usually done on daily basis. If the fund management charge in a particular fund is 2% pa  then the average fund management charge per day would be 2/total number trading days in a year. Fund management charges vary from 0.25% to 2.5% as it depends on different companies, depend on different products, and depend on different funds.

Switching Charges

These charges are applicable for shifting your investment from one fund to another during the time of market crash or economic imbalance to protect your fund value. The charges are usually flat amount per each switch and always less. But it is better to confirm with the companies on it to work upon the best ULIP insurance policy.

Mortality charges

These charges are the costs  of life insurance cover. This will be levied either by cancellation of units or by debiting the premium but not both. A Mortality charge may be levied at the beginning of every policy month. The method of computation will be explicitly specified in the policy document.