Definition
Reduction in Yield
Reduction in yield is the difference between a ULIP's gross investment return and the net return to the policyholder after all charges.
IRDAI caps the net reduction in yield (RIY) that a ULIP's charges may impose, with the permitted reduction tightening the longer the policy runs, to ensure ULIPs deliver reasonable value compared with mutual funds. The cap effectively limits how much allocation, administration, mortality and fund-management charges can eat into returns.
RIY is disclosed in the benefit illustration and is the cleanest single measure of a ULIP's cost drag. A lower RIY means more of the market return reaches the investor; comparing RIY across ULIPs is more meaningful than comparing individual charges in isolation.
Related terms
- Premium Allocation ChargePremium allocation charge is a percentage of a ULIP premium deducted upfront before the balance is invested in the chosen funds.
- Fund Management Charge (FMC)The fund management charge is an annual percentage fee deducted from a ULIP's fund value for managing the underlying investment funds.
- Bonus Disclosure (Benefit Illustration)A benefit illustration is an IRDAI-mandated document showing projected policy values at standardised assumed rates so buyers can compare plans realistically.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.