News round-up

The best thing about Birla Sun Life's new Dream Plan is it offers you a guaranteed maturity benefit that you set yourself. In other words, it's a top-down plan; you set a target at the end of the term, and pay the premium according to your target. A small sum is directed towards your insurance needs, which you can increase depending on your requirements. Says Vikram Mehmi, CEO, Birla Sun Life: "The policyholder is always guaranteed the maturity amount chosen and, therefore, he can plan his needs.''

The policy period can vary from five-to-25 years, but for people between 18-60 years of age. There are three options under the guaranteed maturity benefit scheme: 100 per cent, 200 per cent and 300 per cent. In the 100 per cent option, the plan (with the guaranteed maturity) matures upon end of term (that you choose) and life cover ceases at maturity. In the 200 and 300 per cent options (which is essentially doubling and tripling of your target), the life cover ceases at maturity of the policy, but you receive the additional guaranteed maturity benefits over a further period of five years.

Vikram Mehmi CEO/ Birla Sun Life: "The policyholder is always guaranteed the maturity amount chosen and, therefore, he can plan his needs"

For a 30-year-old male, for example, with a target guaranteed benefit of Rs 1 lakh for 25 years under the 100 per cent option, the premium works out to Rs 3,640. The insurance, in case of any eventuality, works out to Rs 54,100. Initially, 100 per cent amount is invested to purchase units, after which the policy charges are recovered from the fund. Fund values and guaranteed values will be reduced every month by reducing the units. There is a fund management charge of 1 per cent per annum.

The Dream Factor

The pros and cons of the dream plan. 

Upside
 

• A minimum guarantee of 3 per cent on premium paid, deducting other charges
  
  
• Works like a traditional endowment plan and regularity of premiums will provide guarantee benefit. Works like a Mutual Fund post-maturity
  
  
• Option to choose guaranteed returns in bands of 100 per cent, 200 per cent and 300 per cent
  
  
• All your money gets invested upfront into units, as this is an endowment plan
  

Downside

• This is good, though savings banks provide these returns
  
  
• Beyond the minimum guarantee, there are no guaranteed returns-one could always invest separately in a mutual fund
  
  
• Overheads, though lower after maturity, still don't offer any specific advantage over pure play mutual funds, or fixed maturity plan FMPs
  
  
• Gets reduced to account for overheads, including mortality charges, which are high
   

But the not-so-good thing about the policy is that for a basic sum assured, the charges are quite steep: 8.45 per cent for the first three years in a term of five years for a basic sum assured of Rs 1,133 and 12.26 per cent for the remaining under the 100 per cent maturity option. These charges vary as per different bands set under the policy. "The overheads are very steep,'' points out Gaurav Mashruwala, a Certified Financial Planner (CFP) and wealth advisor, "and the guarantee of 3 per cent is not too exciting.''

Explains Rahul Aggarwal, CEO, Optima Risk Management Services, with an example of a 30-year-old male opting for a guaranteed maturity benefit of Rs 12 lakh with 100 per cent option and a sum insured of Rs 7.08 lakh: "The mortality charges and policy administration charges amount to a stupendous Rs 14.73 per Rs 1,000 of sum assured against Rs 2.85 to Rs 3.25 per Rs 1,000 of sum assured normally.'' Opting for riders will knock off more units. The plan, however, does allow you to choose a mix of targets and options on offer-but that by itself does not really make it a dream plan.

Load-shedding

Funds are tweaking load structures to increase AUMs.

The loads are coming off. ICICI Prudential Asset Management Company (AMC) and JM Financial Mutual Fund (MF) brought down the load structure for a select few funds. ICICI Prudential AMC will not charge a load on redemption or switching from three funds-ICICI Prudential Power, ICICI Prudential Services Industries Fund and ICICI Equity & Derivatives Fund Wealth Optimiser Plan. Earlier, they had 1 per cent exit load. While JM Financial mf cut its exit load by half in JM Arbitrage Advantage Fund to 0.50 per cent, if redeemed within 30 days. Before this, JM Arbitrage Advantage Fund charged a 1 per cent load on redemption within three months. An exit load is usually applied in a fund to discourage short-term money. However, with markets reeling under pressure, funds are seemingly encouraging short-term money. Says Hemant Rustagi, CEO, Wiseinvest: "The move is to garner AUM to increase the corpus." For instance, ICICI Prudential Power Fund witnessed a 49 per cent fall in AUM in July 2007 to Rs 770 crore, from Rs 1,506.82 crore (see Unloaded Funds).

The Load Basics

Load is a charge or commission to cover mutual fund selling costs. Most funds charge a front-end load of 2.25 per cent when an investor buys the fund, while some funds charge a back-end load when an investor exits. In the above scenario, ICICI Prudential AMC discontinued with its back-end load but continued with a 2.25 per cent entry load. While in JM Arbitrage Advantage Fund, the exit load is reduced by half (the fund does not have an entry load). Says Rustagi: "Lower loads are good for investors, but they should not be compromised for returns."