ULIP v/s Mutual Funds
The area under consideration today is availability of insurance along with mutual funds; and this is likely to remain in the spotlight because of huge attention focused on the area. An investor needs to distinguish the position with respect to other mutual funds that he has experienced. In this entire issue, the question of collection of insurance premium is important and a small distinction can make all the difference.
Regulation In the existing position the mutual funds cannot collect insurance premium. This, according to many people, puts mutual funds at a disadvantage because unit linked insurance plans (ULIP) offer insurance as well as investment like mutual funds together.
There are schemes that still offer an insurance cover but comply with the main guideline. To understand this one has to look at the fine print of the entire issue.
Offering insurance Presently when a mutual fund offers insurance along with the investment in their specific schemes, the entire situation works in a different way Mutual funds that offer such insurance do not ask the investor to pay the premium.
This means that the funds are offering insurance but are not collecting premium and the later condition is the one that has to be complied with. Currently the funds enter into a tie up with the insurance companies to provide insurance and they pay the cost. This is not collected from the customer. This thus becomes affordable only for those funds that have a strong financial position and this is also the reason why such insurance is offered for specific types of investment.
Collecting premium This can be distinguished from the situation where a mutual fund house collects insurance premium from an individual. This is what has been demanded from several quarters to get the mutual funds back on a level playing field with other instruments in the market.
Once the fund houses start collecting premium, they are effectively giving both the benefits of insurance and investment at a single place and the character of the investment changes. Investors need to look at the fine print because it is this kind of small change that can lead to a different outcome. They need to understand what is happening and how they are getting affected in terms of the benefits received.
PREMIUM DIFFERENCE ¦ Insurance and investments are very popular offer ings in the market ¦ There is a demand for mutual funds to provide insur ance ¦ Currently mutual funds cannot col lect insurance pre mium ¦ So mutual funds offer free insurance to some investors ¦ This is different from a state where they offer insurance too and collect premium for the insurance
Cross posted on Personal Finance Blog and Insurance Blog
Allen Taylor Said,
August 26, 2008 @ 5:31 pm
Nice writing. You are on my RSS reader now so I can read more from you down the road.
Allen Taylor
RanjanV’s Weblog » Archives » Recent Posts on Stocks, Mutual Funds, Startups and Insurance Said,
August 26, 2008 @ 9:48 pm
[…] ULIP v/s Mutual Funds […]
Mutual Funds Said,
August 27, 2008 @ 8:19 am
You give them a small amount of money, they add it to that of thousands of other investors and they watch over it for you. Mutual Funds
Hardik Said,
September 30, 2008 @ 4:44 pm
i want few featured charecterestic in between mutual fund and ulips.