Mutual funds are fast becoming the most preferred investment portfolio for many prospective investors. Before opting to invest in a fund, it is always better to know about different companies selling them and the fee they charge for their services.
Insurance companies: Insurance companies should be the least considered option while buying a mutual fund. In most cases, insurance companies never sell this type of fund directly. They often combine the benefits of a mutual fund along with certain other products. These combinations are offered to customers in the form of unit-linked products. Another disadvantage of buying such products from an insurance company is the sales load that these funds carry. A sales load can be defined as the fund commission paid to brokers. This can range from 4 to 8 percent.
Banks: Another unfavorable place for buying fund is a bank. Disadvantages of buying a fund from a bank are the same as they are with insurance companies. Even banks prefer to sell the funds in the form of loaded funds. Investors either need to bear the entry load or the exit load. Another disadvantage is that banks do not offer much variety keeping in consideration the investment objectives of the investor. Also, in most banks, there are no capable financial advisors providing much information about the funds and their advantages to customers.
Stock brokers and investment advisors: One should approach these groups with caution. Some of these people tend to sell the funds loaded with heavy entry or exit costs. Even if an investment advisor offers a no-load fund, he charges heavy fees for his financial service.
Discount stock brokers: These people are one good source of buying these types of funds. This is because, these brokers are registered with different mutual fund companies and offer a wide variety of fund options to investors without any load. Discounted stock brokers are primarily preferred more than mutual fund companies due to their value of expertise in this sector and also the advice they offer to customers are usually based on their investment needs.
Mutual fund companies: These should be the most preferred source of buying a fund. These companies do not charge any transaction charges to customers who approach them directly.
Tuesday, April 29, 2008
Unit Linked Insurance Plan In India
In India, Unit Linked Insurance Policies (ULIPs) are insurance policies that combine risk coverage with investing in the stock/debt markets. In effect, they are designed to behave as normal insurance policies plus mutual funds.
An investor's contribution to ULIPs gets invested in specific types of portfolios that he/she chooses. The policy typically pays back based on market returns on investments at the end of the insured period. Therefore, it forms an interesting savings instrument that can get good risk cover.
Features of ULIPs include:
1. Units allotted under ULIP schemes have Net Asset Values (NAV) declared regularly, like a mutual fund
2. Investors can invest across types of portfolios similar to mutual funds - growth equity, balanced, debt funds, etc. Investors can move across portfolios, typically at nominal costs
3. Investors can invest as a lump sum (single premium) or make premium payments on an annual, half-yearly, quarterly or monthly basis. Premium amounts can be changed over the course of ULIP's life
4. Investments qualify under Section 80C of the Income Tax Act. Maturity proceeds from ULIPs are tax free. There are no long term capital gains tax and 10% short term capital gains tax on equity portfolios within ULIP. For debt funds, long term capital gains tax is 10% while short term is at the investor's marginal tax rate.
5. However, charges charged by insurance companies can be quite confusing - therefore, investors should compare them with similar mutual funds to see if charges quoted are reasonable.
Despite their interesting structure and potential benefits, investors are better off clearly understanding portfolio types offered, performance of fund managers and expenses/fees before investing in ULIPs.
An investor's contribution to ULIPs gets invested in specific types of portfolios that he/she chooses. The policy typically pays back based on market returns on investments at the end of the insured period. Therefore, it forms an interesting savings instrument that can get good risk cover.
Features of ULIPs include:
1. Units allotted under ULIP schemes have Net Asset Values (NAV) declared regularly, like a mutual fund
2. Investors can invest across types of portfolios similar to mutual funds - growth equity, balanced, debt funds, etc. Investors can move across portfolios, typically at nominal costs
3. Investors can invest as a lump sum (single premium) or make premium payments on an annual, half-yearly, quarterly or monthly basis. Premium amounts can be changed over the course of ULIP's life
4. Investments qualify under Section 80C of the Income Tax Act. Maturity proceeds from ULIPs are tax free. There are no long term capital gains tax and 10% short term capital gains tax on equity portfolios within ULIP. For debt funds, long term capital gains tax is 10% while short term is at the investor's marginal tax rate.
5. However, charges charged by insurance companies can be quite confusing - therefore, investors should compare them with similar mutual funds to see if charges quoted are reasonable.
Despite their interesting structure and potential benefits, investors are better off clearly understanding portfolio types offered, performance of fund managers and expenses/fees before investing in ULIPs.
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