http://timesofindia.indiatimes.com/Cities/Goa/Saving_money_the_mutual_way/articleshow/3050147.cms
https://www.hdfcinsurance.com/products/pdfs/Unit%20Linked%20Young%20Star%20Plus.pdf
If you take a closer look at the allocation charges only 40% (for premium less than two lac) of your premium is allocated towards the buying of the units and the remaining 60% of your premium is paid as commission. Furthermore any lay man who deposits (FD) his money in any nationalized bank is looking forwards to withdraw the principle + interest. But with ULIP the investor will not even assured to get his principle invested back in the first year or the following years.
HDFC Unlit Linked Young Star Plus
Premium Allocation charges: (for premium less than 2lac)
For the first year 40% of your premium is allocated towards purchase of the units and 60%of your premium is used to pay commission to your friendly agent and all who are involved in this process. In other words you are paying this 60% of your hard earned money which you feel will generate more income for your future at retirement as a kind gesture to letting you to invest in their company.
Fund Management Charge:
In the above mentioned offer document the charges are 0.8% per annum of the fund value(sum assured). This looks less but try to add this in the final results.
Other charges:
(A). Fund administration charges which is this case is Rs.20/month or Rs.240/yr
(B). Mortality & Other charges: Which are between 1 -2 % which keep on increasing with your age. (1.5% for 30yr of age approx. value)
A low risk ULIP gives an annual return of 8-10%. Let's do some simple calculations
Commission paid:
60% / 20 years = 3% per year we pay commission upfront plus 1% more from the second year forward
0.80% as Fund Management Charges
.024% as Fund Administration charges
1.5% as Mortality Charges & Other charges
If you calculate all this its works to 4%(3% + 1%) + .80% + .024% + 1.5% = 6.32%
The fund company takes more than what is paid to you.
Suppose the fund gives an annual return of 10% the best return a liquid fund gives you will only get 4.68% return on your fund value.
The above calculation is for HDFC ULIP Plans almost all the ULIP plans come up with the same results.
TO SUM IT UP ASK YOUR FRIENDLY AGENT TO GIVE IN WRITING THE PROJECTED ANNUAL RETURNS AND SEE WHAT IS HIS ANSWER.
