Saturday, September 3, 2011

FREE LIFE INSURANCE BY MUTUAL FUNDS.....AN ANALYSIS


Many AMCs are offering Free Life Insurance Cover with SIP investments.
Should you take the offer???


Srikanth Matrubai analyses....

I have always advised against mixing Investments with Insurance.
But,
but,
there is a combo bundled product wherein Free Life Insurance cover is given by Mutual Funds like Birla, Reliance and Kotak.
Let us analyse whether they are worth being looked into......
Let us look at each AMC separately and see what they are offering.



Birla Century Sip gives you a cover which will be equivalent to your market value of the units you have or 100 times your monthly sip whichever is less.

Under the Century SIP option, if the investor makes monthly SIP instalments, the insurance cover for the first year will be 10 times the SIP amount and in the second year it will go up to 50 times and 100 times from third year onwards, subject to a minimum SIP instalment of Rs 1000 and maximum cover of Rs 20 lakh per investor.   Among the Birla Funds you can consider Birla Sunlife Frontline Equity Fund, Birla sunlife Dividend Yield Fund and Birla Sunlife Equity Fund.





Kotak Mutual Fund also offers Life Insurance Cover wherein in case of death of Parent, the fund will invest the Balance Sips in the name of the Child. Among Kotak Funds you can consider KOTAK K50 FUND.


Reliance Mutual Funds is also offering Free Life Insurance Cover through SIP Insure.
In Reliance SIP Insure, Reliance will pay the unpaid instalments of the future SIPs in the event of the death of the investor during the sip tenure.

Among Reliance Funds, you can consider RELIANCE GROWTH FUND AND RELIANCE EQUITY OPPORTUNITIES FUND.

Kotak and Reliance Mutual Fund offer similar type of Life Insurance. The difference between the two being that in Kotak, the nominee has to be compulsorily your kid, whereas in Reliance, it could be anybody.
Also, in Kotak, the unpaid installments is paid to the nominee....

However, Reliance does not offer the cover for its Tax Saving Scheme.The drawback with both of them,is that the Insurance actually reduces going forward and becomes NIL when your sip ends!.

Principal Personal Tax Saver and Principal Tax Saving Fund offer Personal Accident Insurance Cover upto 150 times the number of units you purchase.

HDFC too offer Personal Accident Insurance Cover,  the coverage will be equivalant to 10 times of the cost of outstanding units maximum upto Rs. 10 lac and this is offered only for its HDFC CHILDREN'S GIFT PLAN.

Earlier,  DWS was offering a simple and uncomplicated Term Insurance cover of 5 times your Investment as Life Insurance, subject to a maximum of 5 lakhs. However, this has been stopped for reasons best known to them.



SHOULD YOU TAKE THE OFFER??



MY ANSWER IS ……

YES....HERE'S WHY.....


While skceptics will always find loopholes in any product as with these products, I personally feel that if you want to invest for long term, why not use this added benefit.


When you invest in this combo,

1. Long Term Investment Benefit will be ensured.

2. No Matter what, your Targeted Amount will be reached.

3. As some so called experts (one CFP has even written a lenghty article titled "DO NOT INVEST IN MUTUAL FUND SIP".....Lol.....Excellent Attention grabbing Headline,)
these funds have 2% exit load....I do not see anything wrong in them.

When you are ready to pay 2-5% charges every year in ULIPs (and some hidden too), then giving 2.25% (max) AMC charges should not stop you in investing in such a excellent product.

Moreover, most importantly, in Schemes like Birla Century SIP, you can stop your sip after 3 years and still can continue to enjoy the Insurance Cover.





Take Dividend Payout :

If you feel that you are forced to stick to one fund throught just for the sake of insurance, I Suggest you to  take the Dividend Payout option and invest the proceeds in Balanced Funds..and also STOP further sips after 3 years.

Exit load is charged to prevent investors from premature withdrawal....and encourage long term investment.
The Same ‘Expert”(?) said that in event of death, nominee will redeem and has to bear 2% exit load:, well, I am sure no nominee will crib about 2% when he is getting the Insurance amount as well as the fund value.

Regarding exiting paying 2% exit charge on withdrawal after bad performance, again, 2% should not come in way of coming out of a dud fund....and moreover, why invest in such a fund in the first place???



Caveat :

These Mutual Funds have the right to modify the terms of Insurance, especially after the most unethical modification done by DWS Mutual Fund, read (http://goodfundsadvisor.blogspot.com/2010/03/dws-mutual-funds-ethical-kill.html)

If other AMCs do follow this unethical move by DWS, (which is most unlikely),  then you are in for a shocker...

Also, liquidity becomes an issue when you go for these Free Insurance offered by Mutual Funds.

Note :
In Birla, the Insurance Coverage will gradually Increase^^^^^^^^^
but in Reliance and Kotak, the Insurance Coverage will gradually decrease.
Ideally, one can take a sip in 1 Birla and 1 Reliance/Kotak, this way your Insurance Coverage will be more or less the same throughout.
Experts like Dhirendra Kumar, Suresh Sadagopan, Veer Sardesai have endorsed that these products make for good investment.

So, investors, the Combo product gives you Insurance Cover in an absolutely cheap way and be seriously looked especially if you are investing in Reliance/Birla/Kotak funds.

And, yes, your Primary Motive should an investment and the Fund should qualify for that, the Insurance Bait should be taken only as a Value addition and should not be the sole criteria for investing in these funds.

PLEASE DO NOT TAKE THIS AS A REPLACEMENT AS FOR REGULAR TERM INSURANCE OR ULIP.





Best of luck,
Srikanth Matrubai





Also visit
http://equityadvise.blogspot.com

2 comments:

  1. While skceptics will always find loopholes in any product as with these products, I personally feel that if you want to invest for long term, why not use this added benefit.

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