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Published by Mayuri Patil

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Published by: Mayuri Patil on Jul 02, 2012
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 RRK Financial Services - Your Dream our Goal !HomeAbout MeWhy New Blog ?Books
Wednesday, April 25, 2012
ULIP Plan Cost Vs Mutual Fund Cost
ULIP Plan Cost Vs Mutual Fund Cost
Some insurance advisers recommend ULIP based plans for meeting the long term goals of the investorsand some financial advisers recommend mutual fund with a term plan as a solution to meet long termgoals of the customers. Each one believe one is superior to other solution.Insurance companies offering ULIP plans have several layers of costs and it is not easy to comprehendtotal cost of the plan. But it is not difficult to read the expenses of a mutual fund. Even a novice investorcan see the costs that he is paying in mutual fund as fund expenses. I don't understand why IRDA can'timpose a rule on all insurance companies to use one simple fixed ratio as an expense.I made a small attempt to compare mutual fund costs against ULIP plan costs and see how they stand upagainst each other.Plan-A:I picked a typical ULIP plan (type 1) that has Policy Admin fee, Premium Allocation charge, mortalitycharge, fund management charges etc.,I assumed an investor who is Male 35 years old, investing for 15 years by paying a premium of 1 Lakhper year. His life will be insured for 10 Lakhs.
Plan name: IDBI Dream Builder Plan.Premium allocation charge: 3.2%,policy admin charges: Rs.6K for first 5 years and 3150 for next 10 years. ( No body can complain I chose acheaper plan !!)Fund Management Fees : 1.35% of fund value.Plan-B:I am picking a mutual fund with fee of 2%.No entry load and no exit load.No taxes in either case. 10(10D) benefits and long term capital gains being zero neutralize each other.To make the comparison apples to apples, we need a term plan to go with this mutual fund. So, investorwill separately buy a term insurance for 10 Lakhs from Kotak paying annual premium of Rs.2,466. [ Wedont want LIC policy, who charges Rs.3,481 for same 10 Lakhs] Further if I want to show mutualfund+term insurance in bad light, LIC figures would be appropriate !Let us look at tables one by one.Table-A : Cost details of ULIP plan.
 Table-B : Cost details of mutual fund + term planTable-C: Comparison of costs

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