Saturday, May 24, 2008

Free Insurance by Mutual Funds

Mr. Khilji wrote :: " Check out the latest facility of SIP+Insurance offered by Reliance. I was planning to start SIP of 1500 Rs. as per advice of some senior members, which I am going to make 2000 Rs. out of total 15000 Rs. SIP monthly. Please post your views / suggestions on this as well as my idea of 2000 Rs. SIP."

Srikanth Shankar Matrubai replied ::: ""
Its good that you bought this topic to the message board. In fact, I was planning to do the same. The way the Insurance works is like this :::
Suppose you take a sip for 10 years say for 2000 per month. Then the Reliance Mutual Fund will provide 2000 * 12(months) * 10 (years) i.e. Rs.2,40,000 insurance to you. Now, the catch is, the Insurance will keep reducing every month as you keep completing the sip.
Say, after the 1st year, since you have to pay for only 108 months, the insurance coverage will automatically reduce to 108 * 2000 that is, 2,16,000. This way, insrance will keep reducing monthly, ultimately bringing your insurance to nil on the completion of your sip.
Kindly, if two consective instalments is made, then the insurance stands cancelled. Though your investment stays on.
I think Mr.Ranjan would be a better judge on this, as he is an expert in insurance investments.

The same option is available in Kotak Mutual Fund Schemes also.
This fund works better for those who already have some sort of Insurance. Otherwise, you are better off going for a Term Insurance and going for a normal Sip.
If you are really interested in Mixing Insurance with Mutual Funds, I would advise you to invest in Deutsche Mutual Fund's DWS Tax Saving Fund which works in much better and friendly way.
In Reliance and Kotak Mutual Fund, the Insurance keeps reducing and is available only for Sip investors. However, in DWS Tax Saving Fund, the Insurance is available for both one time investment as also for SIP. Here, the insurance is given for 5 times of your investment value. And more importantly, the insurance is covered upto the completion of 60 years age.
And most, importantly, if with slight intelligence, you procure different folios in the same fund, you can withdraw or redeem one folio and continue to enjoy returns and insurance in the other folios in the same fund.
Last but not the least, DWS Tax Saving Fund has been a very good performer since launch and is second ranked in terms of returns.

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