There are various options available for investments but why mutual funds stands out as compared to insurance products, let's understand it in more detail.
1. Mutual Funds are not an
insurance but an investment product. Here our money is invested in market
securities so that we get a better and inflation hedged returns which can meet
our future financial requirements/goals.
2. Insurance means if
something happens to the policy holder then his family/nominee will get a
pre-defined lum-sum money. Although no one can fill the gap of that person
emotionally however this money helps the family members to get financial
support.
3. In Insurance only the cover
amount is fixed not the bonus amount. Bonus is declared every year based on the
company’s returns like in case of mutual funds.
4. In Insurance to cover your
risk tem insurance products can be taken, where the premium amount is much less
as compared to normal insurance policies.
5. For example if a 30 Year
old person wants one crore coverage. Then if he takes normal policy of Jeevan
Anand (with 35 years coverage) then he has to pay a premium of ₹2,99,434 (₹2,86,540
premium +₹12,894 tax). The same one crore coverage can be taken by LIC’s term
insurance policy Jeevan Amulya where the premium will be only ₹32,096 (₹27,200
premium+ ₹4,896 tax). Please also note that in case of Jeevan Anand, policy
holder has to pay a tax of ₹12,894 every year in which he did not gets any
returns.
6. In mutual funds there is no
tax at the time of investments and your whole money is invested in the scheme
without any deduction. Whereas in case of Insurance approx. 4-5% of total
premium goes to tax. Yes it is 4-5% of the total premium in which you do not
get any returns. Since your investment amount is reduced so only because of
this reason the total returns on investments comes down by 4-5% (actually it
will be much more but for simple calculation let’s assume that only).
7. However no Insurance agent
tells about term insurance, why? Because in term insurance schemes the
commission to agents is very low which makes it unattractive from selling point
of view. And the argument given is “You don’t get any return on term
insurance”. Do you get any returns in Mediclaim policy or car insurance if
there is no claim? then why do we need returns in life insurance? If we take
term insurance and invest the remaining amount in a good return products then
we can get multiple time returns as compared to normal insurance products. As
well as our life is also covered by right product.
8. For example as mentioned in
point no. 5, if we take term insurance instead of Jeevan Anand and invest the
remaining amount ₹ 2,67,338 in a mutual
fund with expected 10% P.a. then we can get almost ₹ 7.97 crores in 35
years. And remember this money is
additional to the insurance cover of one crore.
9. It is said that mutual
funds invest in share market where your all money can be wiped out. Let’s
understand this more.
(i)
First thing mutual funds also invest in bond/debt market. In fact almost 60% of
total mutual fund money is invested in Debt market, yes this is the same market
where LIC also invests.
(ii)
Secondly mutual funds have various different type of schemes wherein a person
can invest for a week to a year or 5-10-20-30 years.
(iii)
Mutual funds have schemes which invest only in bond/debt market and not a
single penny is invested in equity shares. A person can invest in different
schemes based on his/her financial goals, risk appetite and investment horizon.
(iv) There
is no binding for investment in mutual funds, if due to some reason someone
wants to stop the investments it is possible without any penalty whereas in
case of insurance if we stop the policy in between it can lapse or forfeit.
(v) In
mutual funds you can start investments with as low as ₹500.
(vi) In
mutual funds you can increase, decrease the amount any time. You can stop the
investment and also can restart as per your convenience. All these facilities are not available in
Insurance.
(vii)
Share market goes ups and downs, it is volatile and this is the fact, but if we
invest our money for long term like we do in insurance then chances of losses
are very rare.
(viii)
Share market is a reflector of the country’s economy. If economy is growing and
getting stronger then share market also goes up. For example in 1979 BSE Sensex
was 100 points which is today at 33000+. This is true that it goes down in
between but it also comes back from its lows and goes up again. Like our incomes is growing similarly as the
companies make more profits then there share prices also goes up.
10. Mutual fund companies
provides all details where the investor’s money is invested, Insurance Company’s
do not provide these details.
11. All the portfolio details
of each and every schemes of mutual funds are provided at the website of the
company on monthly basis as well as other websites also. Whereas Insurance Company
do not provide any details where they have invested the money this itself shows
who is more transparent and honest.
12. “Mutual Funds are subject to Market Risk” this warning is given by
mutual funds so that if a person is investing he/she should be aware about the
risks involved and invest only after having full information. Mutual funds give
back all returns (after deducting expenses) and do not keep a single penny with
themselves. Insurance company do declare bonuses but it is discretionary and not
necessary that they pass on all the profits.
13. The NAV (Net Asset Value)
of mutual funds are declared everyday which is not the case for insurance;
therefore Funds Mangers have to very actively manage and perform in case of
mutual funds this is also one reason that their returns are better as compared
to Insurance products.
14. Fund Manager of Mutual
funds knows that if I do not perform then investor can take out his money
whereas in insurance company they knows that once the investor has taken a
policy he will most probably continue as otherwise it will get lapsed/forfeited
therefore they do not have pressure to outperform. This is also a reason that
most of the mutual funds do better than insurance products.
15. Insurance companies are
legally bound to pay the insurance cover amount only. How much bonus is to be
paid depends on performance of their investments and surplus money which is not
guaranteed. And as mentioned at point no. 5 for life cover we can take term
insurance then why should we buy normal insurance product by paying 9.5 times
more for the same guaranteed amount?
16. In mutual funds there is
very small commission as compared to insurance products.
17. Insurance products are
generally sold by creating fear (what will happen to your family if you are not
there) and emotional blackmail which is a negative marketing. Mutual funds are
sold to meet your future financial plans/goals when you and your family both
will be there and can enjoy the money which is a positive marketing.
TAKE INSURANCE FOR LIFE COVER AND INVEST IN MUTUAL FUNDS TO MEET
YOUR FUTURE GOALS
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