I was surprised to find insurance companies using illustrations with 10% expected return using the fund management charges(FMC) for a debt fund. We know that 10 year GSec bond yield ranges between 7.5% to 7.7% these days. Good quality corporate paper offers a few percentage points more. Therefore, I find it hard to accept that debt funds can return 10% over a long tenure of investments which ULIPs expect. Of course, insurance companies are trying to impress investors by using a lower cost fund as IRDA guidelines are silent about which fund to use. In almost all ULIP offerings, FMC for an equity fund range between 1% to 1.35% (thanks to the new cap by IRDA) while debt funds FMC ranges between 0.75% to 1.25%.
While comparing insurance policies on www.policybazaar.com, I found a few policies yielding 8.74% (on expected return on 10%) which is next to impossible if FMC charges for equity fund is close to 1.25-1.35%.
Please watch out for this when you look at the illustration. Here is my recommendation - use debt funds FMC when comparing based on 6% yield and insist on using the equity fund FMC for 10% yield benchmark.
I continue my search for lowest cost ULIP. So far, Bajaj Allianz Igain II is best.
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