Current regulations ensure that you don’t have to worry too much about the costs in unit-linked insurance plans (Ulips). Why? Because regulations now define the maximum an insurer can charge you. In mutual funds, you know this cap as expense ratio, which simply means the maximum that a company can charge you in percentage terms. So an expense ratio of 2.5% means that for a Rs100 investment, the mutual fund company can charge you a maximum of Rs2.5.
In Ulips, the cost caps are defined differently—through a cap on the reduction in yield (RIY). The regulations define this as: the maximum difference allowed between the total return and post-cost return in Ulips. Before we get into the details of how RIY is calculated, let’s understand the different charges in Ulips.
