When an investor is looking for an investment opportunity to achieve their financial objectives, they can decide where to invest on the basis of the return required, risk profile, & the time for converting cash. Mutual Funds are considered to be investment pools, where funds are collected from multiple investors & invested in a diversified portfolio of assets. The investors are supposed to share the profits & losses of the whole fund equally. Due to this shared ownership, these funds are known as “Mutual Funds”.
Some asset management companies offer investments with the dual benefits of mutual funds &life insurance coverage by investing through SIPs. This duo helps to build &grow the wealth along with life cover. For individuals looking for a unique combination of growth &protection, this scheme can be considered as the Best Investment Plan amongst the available plans.
Under this scheme, the life coverage amount depends on the contribution made towards the SIP by an investor. In the 1st year, the insurance coverage is 10 times the SIP amount, in the second year, it becomes 50 times, &in the 3rd year, it may be even higher up to INR 50 lakhs. But some mutual funds may also limit themselves to INR 25 lakhs.
Tips to Buy Mutual Funds with a Life Insurance Plan
Provided are the tips to buy mutual funds with life insurance coverage:
- Look at the Fund’s Performance:
It is advised to assess the growth of the fund by evaluating the historical performance of the mutual fund with life coverage. This can be done to obtain a rough estimate of the expertise of your fund manager.
- Consider Charges of the Fund:
When deciding on a plan, always consider the associated charges, as these charges reduce the cost-effectiveness of your fund. Similarly, check for the different charges applicable, such as expense ratio, transaction charges, &entry load.
- Check Lock-In Period:
Choose between open-ended or closed-ended schemes. This is because the funds cannot be redeemed under closed-ended schemes during the lock-in period, making them less liquid.
Features of Mutual Funds with Life Insurance Cover
Provided are the features of a mutual fund with Life Insurance Cover:
- This life insurance coverage operates in a group, meaning that individual investors fulfilling the eligibility criteria become part of this group.
- There are no additional charges by the insurance companies; it is free of cost for the individuals who fulfil the eligibility criteria.
- The life coverage amount increases gradually in the 2nd &3rd years.
- There is a maximum limit to the sum assured depending on the fund’s value.
- The life insurance coverage ceases once the maximum age limit is reached.
- This feature does not get activated on its own at the time of application. You are required to contact the partner insurance company to receive the sum assured in the event of the premature demise of an investor.
How Do Mutual Funds with Life Coverage Work?
Let us now understand how mutual funds with life insurance work:
- Investors Deposit the Amount:
The individual investors are required to deposit a certain amount in the mutual fund through the mode of SIP on a timely basis. A specific percentage of this amount will be allocated by the fund manager towards insurance. The Asset management company, together with the insurance company, offers life insurance coverage to the investors.
- A Group Life Insurance Plan for Investors:
All individual investors who meet the eligibility criteria of the plan form a group to get benefits from the group insurance plan. In the event of the sudden demise of any investor, their beneficiary will receive the benefits upon the claim being raised by them.
- Sum Assured Amount:
Normally, in the initial year of inclusion, the AMC offers 10 times the value of SIP as the sum assured. In the 2nd &3rd years, this gets increased to 50 &100 times the value of SIP, respectively.
Eligibility Criteria
Provided are the eligibility parameters to be met to qualify for this scheme:
- The minimum age of an applicant can be 18 years.
- The maximum age of an applicant can be 50 years.
- An investor is allowed to invest in a mutual fund with a regular Systematic Investment Plan.
- Indians &Non-Resident Indians, who invest through a Systematic Investment Plan, can avail themselves of insurance coverage.
- This SIP must have been in place for the last three years to qualify for insurance coverage. This means that if the SIP is discontinued for any reason before the completion of 3 years, the eligibility parameter will not be met.
Things to be kept in Mind
Provided are the things that should be considered while investing in mutual funds with life insurance:
- You have to continue the plan for at least 3 years; any premature withdrawal will result in lapse of the life insurance plan along with 2% exit load. If premature withdrawal, whether full or partial, takes place within 1st year, a penalty of 2% of NAV will be levied.
- This scheme does not provide enough life insurance coverage as a sole life insurance plan does.
- In case of failure to pay or late payment of a few SIPs, life insurance coverage will lapse.
Reasons AMC offers Insurance through Mutual Funds
- Extra Values for Investors:
It offers a value addition to the investment, making it more attractive.
- Customer Retention & Attraction:
It helps retain existing customers while simultaneously adding new ones.
- Improved Investment:
Added insurance coverage makes the plan more competitive against other schemes.
- Risk Reduction for Investors:
Due to insurance coverage included in the scheme, it offers financial security &reduced risks.
- Regulatory Compliance:
It ensures regulatory compliance, hence protecting the interests of investors.
- Marketing &Branding:
It helps enhance the market & brand value.
Conclusion
Mutual Funds with life insurance coverage are a distinctive mix of financial security &wealth creation. Though this plan may offer limited life insurance coverage, it is quite an attractive option for investors seeking a combination of mutual funds &life insurance coverage. This scheme can be the best investment plan for those looking for a plan providing a balance between protection &returns, securing financial objectives.
