You might have read about the recent spat between the market and insurance regulators, SEBI and IRDA. What was it about? Money, of course! SEBI is mandated with regulating investments and IRDA with insurance. Now, we have a product called ULIP (Unit-Linked Insurance Policy) which is brought out by insurance companies, but in effect is only about 5% insurance and 95% investment. Naturally, SEBI wanted to regulate this, but IRDA says no. Anyone in finance could tell ULIPs are hopelessly loaded against consumer interests as of now. Take a look at this:
|Agent’s/Distributor Initial Commission||0% (Yes, Zero)||15%-40% (depending on product)|
|Annual Expenses Charges||2.25%||4% (first five years) 2.25% afterwards|
|Lock-in period||None||3 years (being increased to 5)|
How is it that ULIPs are everywhere, Mutual Funds are rarely seen/advertised anywhere?
Simple, with the very high commission (upto 40%) on ULIPS, their agents are everywhere.
So high commission? But I don’t pay anything!
You don’t. But the equivalent units from your investment is reduced. (Just check your annual insurance statement). So you pay, but don’t know.
But I get insurance!
True, but the cost is very high. Ask for a term insurance instead. (Premium would be around Rs.8000 per year for a Rs.30 lakh policy!).
But I don’t get any returns in term insurance.
You are confusing investment and insurance. If your automobile has no claims in an year, you don’t expect anything back from the insurance company after an year. If you don’t get hospitalized for an year, health insurance companies doesn’t give you anything back. That’s insurance.That should be insurance!
But agents do all the work. I just have to pay. Does anything similar exist for Mutual Funds?
Hmm..nobody works for free. Your best bet would be to visit HDFC bank (just a one-time affair). They allow online mutual fund investments in almost all major mutual funds, not just HDFC’s. And you don’t need demat account and such complexities, which are required in online share trading.
So, are Mutual Funds and ULIPs the only way for long term investment without bother?
There is the New Pension Scheme (NPS). We will cover it shortly in our magazine.