Sunday, 17 February 2013

Danger of investment linked products

Recently, the STI shot above 3000 mark and I decided that it is time to surrender my Investment Linked Policy (ILP) with Manulife. This was a balanced fund investment using my CPF investment account during 2006. The return was around 4.5% per annum on average which is very amazing.....amazing in the sense that the Singapore government is also paying the same rate for money left in the special account. I figured that I have been screwed as I took on market risk but the end result was that it cannot beat the risk free interest rate. So time to surrender and send the funds back to the CPF board and say bye bye to Manulife.

The problem with surrendering the ILP is that it is only effected 1 working day after you submit your application. 1 day is a very long delay as history has proven that stock market can drop a few hundred points during economic crisis. 

Another unique feature of ILP is that even if the funds made losses, you still need to pay them management fees. This is tantamount to rewarding people for poor performance. 

Last but not least, ILP always come with extra insurance that one does not require. This is a scam to hide the additional charges. Investment and insurance are two vastly different subjects in financial planning. Mixed them into one product and what you get is as clear as mud.