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We do hope you enjoyed reading our first issue of Ringgit and Sens last month. Those who are receiving this issue as their first one and would like to read the earlier issue, may do so by visiting eastspringinvestments.com.my and download a copy.
We are delighted to bring to you this which will seeks to explain and outline differences between Investment Linked Insurance and Unit Trust Funds, to help you further plan your investments in these products.
We do hope the contents would be of relevance and interest to you and may assist you, as we've also included the Market Outlook and Funds Commentary for different categories.
We do hope you enjoy reading this and subsequent issues, just as much as we enjoy putting these together especially for you. Happy reading.
Yours truly,
Judy Yap
Director, Brand & Communications. |
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Choosing between insurance and investmentMalaysians are spoilt for choice when it comes to investing. Whether it is for a short, middle or long term goal, there is a product to suit everyone.
The brisk growth of investment-link plans (ILP) over the years has pushed its profile up, becoming a popular option among potential investors. The Life Insurance Association of Malaysia reported that ILPs continued to enjoy a healthy growth last year with 49.5% of new business share.
But owing to its similar mechanics, potential investors often question the differences between an ILP and unit trusts. Unless the consumer proactively reads up and keeps abreast of the news, he or she is usually clueless.
At a glanceAn ILP is a life insurance plan that combines protection and investment. The premium paid for by the client is divided to meet the two purposes; one part provides for the life insurance cover while the other is invested in specific investment funds to benefit from market-related returns. In ILPs, the insurance companies are the ones who choose and manage the invested premiums, bypassing asset management firms.
A unit trust or mutual fund (the term is loosely used interchangeably in Malaysia) is a pool of funds collected from various investors to invest in stocks, bonds or other assets. Its sole purpose is to generate capital gains and profits for the investors unlike ILPs, which is packaged as a savings product. Unit trusts are operated by fund managers who invest and manage the capital.
Key differencesILPs are regulated by Bank Negara and are only sold by authorized insurance agents. Typically, no offer document is required during an offer to sell the product. In addition, only cash investments are accepted for ILPs.
Unit trusts, on the other hand, are governed by the Securities Commission Malaysia. Only licensed persons dealing with unit trusts are allowed to sell the product. Unlike ILPs, an offer to sell unit trusts must be accompanied by a fund prospectus. Investors are also allowed to withdraw from the EPF Members' Investment Scheme to invest in selected funds.
BenefitsClients stand to reap considerable benefits from both ILPs and unit trusts depending on their objectives and risk factors. In both products, there are no guaranteed returns and policy holders/investors bear 100% of the risk investment.
But one of the key benefits of ILPs is the protection offered. Usually, the premium required for ILPs is much lower compared to a traditional term life policy and remains the same throughout every year. Beware though as the insurance charges are subject to change. The ILPs insurance charges are structured so that they increase incrementally with age. ILPs policy-holders also have the option to top up their premium and withdraw cash.
The OneA robust Malaysian economy will continue to boost the popularity of ILPs and unit trusts. Both products offer potential market-related returns. The key feature of ILPs to remember is that it is a 'combo' product to provide protection and also investment.
Key differences of ILPs and Unit Trusts
| Investment-Linked Plans |
Unit Trusts |
| Insurance companies that offer these investment linked plans are governed by Bank Negara. |
Unit trust management companies that offer these collective investment schemes are governed by the Securities Commission Malaysia |
| Sold by authorized/licensed insurance agents |
Sold by authorized/licensed Unit Trust Consultants (UTC) |
| No offer document is required during an offer to sell the product. |
An offer to sell unit trusts must be accompanied by a fund prospectus |
| Investors pay a single premium or regular premium and a portion of the premium are used to buy units in the investment plan offered. |
Most unit trust products have a front end sales charge. The sales charge is clearly stipulated in the fund brochure and the fund prospectus |
* Info provided by Eastspring Investments Bhd.
Source:
Life Insurance Association of Malaysia, Life Insurance Industry Performance 2013 (February 18, 2013)
Investorpedia, Mutual Funds
Jean's A Step Closer to Financial Freedom, Investment-Linked Insurance or Unit Trusts (May 3, 2008)
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Eastspring's Review & Market OutlookFund Commentary March 2013
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