Mutual fund insurance policy: Is it wise to invest in such options? Here is what experts say

Mutual fund insurance policy: These days mutual fund houses are coming up with an offer that lets investors buy a plan where insurance is also available. Such mutual fund plans are customised in a way that if an investor opts for them, he or she will have to pay around 0.5 per cent to 0.75 per cent additional expense ratio to ensure completion of the mutual fund plan even when he or she dies in between the maturity period. Generally, a mutual fund house charges around 2 per cent to 2.5 per cent expense ratio on the investment and if an investor opts for a mutual fund with insurance option plan, then he or she will have to pay around 3 per cent to 3.25 per cent expense ratio. 

Speaking on the mutual fund with insurance options Jitendra Solanki, a SEBI registered tax and investment expert said, "Mutual fund houses are coming with insurance options these days. It ensures continuity of the investment even when the investor is not alive. In such mutual fund plans, if an investor dies before the maturity period, rest of the investment will be done by the insurance company and then the maturity amount would be given to the nominee mentioned into the plan at the time of subscription." Solanki said that mutual fund options are also gaining popularity among the investors as it ensures return at the time of maturity even when the investor is not alive.

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However, Kartik Jhaveri, Manager — Wealth Management at Transcend Consultants said, "There is a difference between insurance and mutual fund investment. We buy insurance policies to insulate our dependents from our death while we invest in mutual funds to maximise our investment. An investor needs to understand that mutual fund is an investment while insurance is a hedge against the precarious conditions when he or she is not alive. So, an investor while investing in mutual funds should think about the returns and his or her investment goals only. Mutual fund plans with insurance cover may not give the kind of returns that would ensure meeting an investors goal." 

So, what should an investor do? Jhaveri says, "When it comes to death cover, one should buy a pure insurance policy and when it comes to mutual fund investment, one should focus on the returns and his or her investment goals after the maturity period." He said that there is no point in giving an additional 0.5 per cent to 0.75 per cent expense ratio for the mutual fund investment with a risk of mutual fund plan may not give better returns after maturity.