The other day, when I called customer care executive of HDFC Bank, seeking help on sweep-in facility, she suggested me to invest in some plan which gives tax benefits and can give more returns than FD. I asked "Is that ULIP"? She paused for a moment and then says "Yes". I refused to invest on account of high premium allocation charges, although I was not sure at that moment about charges.
So, after I disconnect the phone, I searched for the official brochure of HDFC Crest Plan and I was right.
I'm just explaining its charges for the 1st 5 years.
Premium allocation charges for the 1st 5 years will be 4+4+3+2+2 = 15%
Policy Admin charges will be 0.31% per month.
Sounds normal? Not exactly.
For 1 year, it will be 0.31 x 12 = 3.72% p.a. and for 5 years, it will be 18.6%
Then, there will be mortality charges, fund management charges (1.35% p.a.).
And, finally add service tax + cess on all these charges.
So, let's add all these charges for 5 years, it will be about 45% i.e. on an average of 9% p.a.
If we expect the equity returns from the fund to be about 12% p.a., the investor will get net return of 3% p.a.
And how much you're getting in savings account – at least 4% p.a.
So, which is better?
I'll still recommend to opt for online term insurance plans to risk cover and equity mutual funds to create wealth.