Compare Ideal plan with unit trust

Dear Mr Tan,

What is the meaning of effect of deduction? Does it apply for both unit trust and ILP?

Based on $2,400/yr, if I invest in unit trust, assume 9% annualised gain for 25 yr period, I’ll get back $203,282.

If I invest in Ideal plan, assume 9% annualised gain for 25yr period, I’ll get back only $168,100.

The income bid-offer spread is lower at 3.5% and yet the effect of deduction is about $44,990 compared to unit trust effect of deduction of $11,200.

I’m just a layman doing the calculations. I may be wrong in my comparison.

J

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Dear J,

For the Ideal plan, the effect of deduction include the following:

* advisory fee of 15% for 3 years
* spread of 3.5% on each payment
* annual management fee of about 1%

In the case of the unit trust, you have to calculate the annual charge, trailer fee and other charges (which is more than 1% per annum) to get the comparable figure.

For example, if the unit trust has a spread of 5% and deduct 2% p.a (in annual and trailer fee), you will only get $149,250 by investing $2,400 a year for 25 years (assuming the gross yield is 9% p.a.). This is much lower than $203,282.

Tan Kin Lian