Fund Management Charges

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Definition

The charges that the insurance company levy on account of fund management under the Unit Linked Insurance Policy is called Fund Management Charges.

Description

Unit linked insurance policy is a dual benefit insurance policy. Under the policy, the insured gets both life cover and the opportunity to invest funds. In addition, the insured is free to choose investment and switch depending on the returns. 

Under ULIP, part of the premium paid goes for the life cover, and the remaining half goes for investment in the funds. The management of these funds attracts a fee called fund management charges. 

The charges vary from one insurance company to the other, but the regulator IRDA has levied a capping on these charges. The regulatory body has stated that the insurance company can charge 1.35% per year in the name of fund management. 

The fund management charge for debt funds is higher than that of equity funds.

Example

Pramod purchased a ULIP policy and only paid the annual premium of Rs.14,000/-. Out of this premium, about Rs.7,000 was invested in the debt fund available under the ULIP cover. The remaining premium was kept to provide life cover. 

The insurance company charged him a fee of Rs.589/- in the name of the fund management charges. Every year Pramod had to pay this amount enabling the insurer to monitor his funds. 

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