Understanding Mutual Fund Products
Have you ever received calls from financial planners from insurance companies? What do you think about their financial planning service? I believe that there are many professional financial planners who genuinely help people to better utilize their money. However, I believe even more out there are merely salespersons and all they want to achieve is to persuade you into buying their products. Today, I would like to explain more about one of the most popular products that they sell - mutual fund linked insurance products.
These kinds of product are getting more and more popular because they can generate large sum of income. The investors believe that help them save and earn the sum of money for their needs like retirement, therefore they are willing to put in a large sum of money first. When an investor pays his payment to the insurance company, the company transfers the sum to the fund managers. Some platforms allow you to allocate your payments to several different funds. The insurance company is effectively breaking down the mutual fund units into smaller blocks so that small investors can participate. The fund managers gather the money and invest it on financial assets like stock. When they earn in buying and selling or the worth of the underlying assets increase, then the price of the fund unit rises accordingly. And on your account statement you will see increases in your account values.
But for me I don't prefer this kind of products due to its high cost. You may not notice that when you look at the brochures or listen to the presentations, because they deliberately play it down. The cost structures are complicated and carefully calculated by actuaries to ensure the gain of the insurance company. The sales man is so good at presenting the numbers; it would sound like the product is a cash generating unit and the cost is so low its negligible. Nothing could be further from truth. In fact, one of the main costs of the product goes to the salesperson. Because the product usually needs fixed annuity payments and the insurance companies have tactics to ensure the continuity of the policy, they are confident to pay out as much as half of all the premiums they receive in the first year.
The second cost is the fee for the insurance company. It is usually calculated as a percentage of your account value. The percentage is not large on first sight as well as the amount initially. However, as the account value grows, the amount of money paid out to the insurance company from your investment is enormous. And that's why they are so wealthy.
Lastly, the fund manager takes a sip of what they earned for you, of course. This is the only cost I think reasonable. After all, they are the ones who executed the buy sell commands for you. But do not be nave and think that they really work hard to earn as much for you as possible. What they really care is to stick to the policy and make sure the growth rate does not fall below a certain level so that they keep their high pay job.
So now you know. You can go ahead and decide whether to answer the call from your 'personal financial planner' next time. God bless. - 23223
These kinds of product are getting more and more popular because they can generate large sum of income. The investors believe that help them save and earn the sum of money for their needs like retirement, therefore they are willing to put in a large sum of money first. When an investor pays his payment to the insurance company, the company transfers the sum to the fund managers. Some platforms allow you to allocate your payments to several different funds. The insurance company is effectively breaking down the mutual fund units into smaller blocks so that small investors can participate. The fund managers gather the money and invest it on financial assets like stock. When they earn in buying and selling or the worth of the underlying assets increase, then the price of the fund unit rises accordingly. And on your account statement you will see increases in your account values.
But for me I don't prefer this kind of products due to its high cost. You may not notice that when you look at the brochures or listen to the presentations, because they deliberately play it down. The cost structures are complicated and carefully calculated by actuaries to ensure the gain of the insurance company. The sales man is so good at presenting the numbers; it would sound like the product is a cash generating unit and the cost is so low its negligible. Nothing could be further from truth. In fact, one of the main costs of the product goes to the salesperson. Because the product usually needs fixed annuity payments and the insurance companies have tactics to ensure the continuity of the policy, they are confident to pay out as much as half of all the premiums they receive in the first year.
The second cost is the fee for the insurance company. It is usually calculated as a percentage of your account value. The percentage is not large on first sight as well as the amount initially. However, as the account value grows, the amount of money paid out to the insurance company from your investment is enormous. And that's why they are so wealthy.
Lastly, the fund manager takes a sip of what they earned for you, of course. This is the only cost I think reasonable. After all, they are the ones who executed the buy sell commands for you. But do not be nave and think that they really work hard to earn as much for you as possible. What they really care is to stick to the policy and make sure the growth rate does not fall below a certain level so that they keep their high pay job.
So now you know. You can go ahead and decide whether to answer the call from your 'personal financial planner' next time. God bless. - 23223
posted by X - Men @ 5:02 AM
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