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Three mutual fund investing benefits you may not know

Mutual Funds

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Mutual Funds article in Advisorkhoj - Three mutual fund investing benefits you may not know

We all know Mutual fund are one of the best investment options not only for your long term wealth creation and financial planning goals but also ideal for your short term needs. But, today we will not discuss about that rather we will discuss three mutual fund investing benefits which you may not be aware of.

LOAN AGAINST YOUR MUTUAL FUND UNITS – All nationalised banks offer loans against Mutual fund units (popularly known as ‘Loan against securities’ or ‘LAS’). This helps you get a temporary liquidity against your long term Mutual funds investments. For this, you don’t need to redeem your investments which you have made to meet your long term financial planning goals. You can approach the bank and apply for a loan. The bank will help you open a current account with overdraft facility and issue you a cheque book. Let us examine some key features of LAS –

  • Loan amount - The loan amount can vary from 50% - 75% of the total value of your mutual fund units. This will be derived by multiplying the number of units with current NAV for each scheme. Some banks offer more overdraft on debt funds as they are less risky and it may also provide you a list of approved mutual fund schemes. The bank is not bound to approve loan against schemes which are not present in its approved list.

  • Interest rate - With effect from 1st Jan 2011, the interest rates on Loan Against Securities (LAS) accounts are linked to Base Rate. Any movement in Base Rate of the Bank would have a similar impact on the Rate of Interest in LAS account. The current rate is 12.50% to 13.00% depending upon the loan amount. Typically banks charge less interest if the loan amount is more.

  • Interest payment only on utilized amount – Once an overdraft account has been opened and the limit has been set you can withdraw any amount within the set limit and pay interest only on the amount utilized. For example – you have a diversified mutual fund portfolio worth Rs. 20 Lacs (according to NAV prevalent on the loan application/sanction date) against which the bank has approved you 50% limit. Therefore, you can use 10 Lac from the current account. Now, suppose you have utilized only Rs.3 Lacs in the first month than you are liable to pay interest on 3 Lacs only and not on 10 lacs.

  • Purpose - Please also note that the loan is granted only for personal purposes. The loan amount can’t be used for capital market or speculative activities or any other activities which may not be of lawful nature in the eyes of the bank. All credit provided against LAS is at the absolute discretion of the bank.

  • Simple procedure – the process is simple as your mutual fund units will be pledged with the bank and once you pay back the same will be released to you. Remember, as the units are pledged with the bank you will not be able to redeem the units during the loan period.

Conclusion: If your investments are aligned with long term financial planning goals and you require a temporary liquidity then availing a loan against mutual fund units could be a good option. You can meet your short term needs and repay the same once you get some extra money in form of bonus, employee benefit fund or maybe a maturity proceed of you FD or Insurance policy. The idea is not to compromise on your long term financial planning objectives for a short time problem. But, you should always consult your financial advisor as he is the one who can evaluate the whole portfolio and suggest you the right moves.

FREE LIFE INSURANCE COVER ON YOUR MUTUAL FUND SIP INVESTMENTS – Yes, some asset management companies offer free Life Insurance cover without charging any load or management fee on your SIP investments with them. Today, we will discuss only two AMCs and highlight the key features –

RELIANCE SIP INSURE by Reliance AMC – This facility is provided for free as an add on feature of life Insurance cover under Group Term Insurance provided to individual investors opting for SIP in the designated schemes of Reliance Mutual fund. Let us now discuss some of the key features of this facility –

Eligibility - only individual investors whose completed age is between 18 years & 45 years (inclusive of both) at the time of investment can enrol for investments via RELIANCE SIP INSURE

Who pays for this – Free life insurance cover is provided as a part of an add on feature called as ‘Reliance SIP Insure’ and is arranged and funded by Reliance Capital Asset Management Limited through “Reliance Group Term Assurance scheme/plan” (UIN 121N006V01) of Reliance Life Insurance Company Limited (Reg. 121). There is absolutely no charge for the investors!

Life insurance coverage amount - Sum assured will be limited to the sum of the outstanding SIP instalments from the date of death to be payable in lumpsum, subject to a maximum of INR 10 Lakhs per investor across all schemes / plans and folios.

Continuity after death of first holder - Reliance SIP Insure provides free life insurance cover to investors at no extra cost. In the unfortunate event of the demise of an investor during the tenure of the SIP, the insurance cover will take care of the unpaid instalments. Thus, the nominee would be able to continue in the scheme without having to make any further contribution. Investor’s long term financial planning and objective of investing through SIP could still be fulfilled as per the targeted time horizon, even if he/she dies prematurely.

What happens after age 55 - Upon completion of 55 years of age, if there are still balance unpaid SIP instalments, those will be treated as Normal SIP with the relevant exit load as may be existing from time to time.

Minimum Investment – SIP INSURE cam be started with as little as Rs.1000 per instalment per month & in multiples of Re 1 thereafter. (Except for Reliance Tax Saver (ELSS) Fund where minimum instalment is Rs. 1000 p.m. and in multiples of Rs 500 thereafter). However, there is no upper limit.

Minimum period of contribution - 3 years and in multiples of 1 month thereafter. Maximum period of Contribution - No upper limit. The investor can opt for Perpetual SIP also. However the insurance cover ceases when the investor attains 55 years of age or upon the completion of the SIP insure tenure whichever is earlier.

Mode of payment of SIP - SIP INSURE instalments are paid only through Direct Debit & ECS. Post Dated Cheques are not accepted.

Cessation of Insurance Cover - The insurance cover shall cease upon occurrence of any of the following –

  • At the end of mandated Reliance SIP Insure tenure. i.e., upon completion of payment of all the monthly instalments as registered or till attaining 55 years of age whichever is earlier

  • Discontinuation of SIP instalments midway by the investor i.e., before completing the opted SIP tenure /instalments or till attaining 55 years of age, whichever is earlier

  • Redemption / switch-out of units purchased under Reliance SIP Insure before completion of the mandated SIP tenure / instalments or till attaining 55 years of age, whichever is earlier

  • In case of default in payment of two consecutive monthly SIP instalments or four separate occasions of such defaults during the tenure of the SIP duration chosen or till attaining 55 years of age, whichever is earlier

Exclusions for Insurance cover - No insurance cover shall be admissible in respect of death of the SIP INSURE unit holder (the insured person) on account of death due to suicide. It will also be excluded if death occurs within 90 days from the commencement of SIP instalments except for death due toaccident. It may also be excluded for death due to pre-existing illness, disease(s) or accident which has occurred prior to the start of cover.

BIRLA SUNLIFE CENTURY SIP by Birla Sunlife AMC – In this case too the name itself suggests that the life Insurance cover is applicable for SIPs only. However, it works differently compared to Reliance SIP Insure and here the maximum life cover is upto 20 Lacs. Let us now examine the key features –

Eligibility - only individual investors whose completed age is 18 years at the time of investment can enrol for investments via CENTURY SIP

Who pays for this – Free life insurance cover is provided as a part of an add on feature called as ‘CENTURY SIP Insure’ and is arranged and funded by Biral Sunlife Asset Management Company Limited. There is absolutely no charge for the investors!

Life insurance coverage amount - Total life insurance cover can be upto a maximum of 20 Lakhs across all schemes/plans/folios. However during the 1st year the life cover restricts to 10 times of CENTURY SIP Instalment and 50 times during the 2nd year and from 3 year onwards it is 100 times of the monthly CENTURY SIP amount.

Continuity - Your life insurance cover continues even if you stop your Century SIP instalments after 3 years. In this case, the life insurance cover will be the same as your fund value. The cover ceases to exist on full/partial redemption or switching prior to completion of SIP tenure.

What happens after age 55 - Upon completion of 55 years of age, if there are still balance unpaid SIP instalments, those will be treated as Normal SIP with the relevant exit load as may be existing from time to time. However, the Life cover will stop.

Minimum Investment – CENTURY SIP cam be started with as little as Rs.1000 per instalment per month & in multiples of Re 1 thereafter. However, there is no upper limit.

Minimum period of contribution - 3 years and in multiples of 1 month thereafter. Maximum period of Contribution - No upper limit. The investor can opt for Perpetual SIP also. However the insurance cover ceases when the investor attains 55 years of age or upon the completion of the SIP insure tenure whichever is earlier.

Mode of payment of SIP - CENTURY SIP instalments can be paid through Direct Debit & ECS and also through Post Dated Cheques.

Cessation of Insurance Cover - The insurance cover shall cease upon occurrence of any of the following –

  • At the end of mandated CENTURY SIP tenure. i.e., upon completion of payment of all the monthly instalments as registered or till attaining 55 years of age whichever is earlier

  • Discontinuation of SIP instalments midway by the investor i.e., before completing the opted SIP tenure /instalments or till attaining 55 years of age, whichever is earlier

  • Redemption / switch-out of units purchased under century before completion of the mandated SIP tenure / instalments.

  • In case of default in payment of two consecutive monthly SIP instalments or four separate occasions of such defaults during the tenure of the SIP duration chosen

Exclusions for Insurance cover - No insurance cover shall be admissible in respect of death of the century SIP unit holder (the insured person) on account of death due to suicide within the first year. It will also be excluded if death occurs within 45 days from the commencement of SIP instalments except for death due to accident. It may also be excluded for death due to pre-existing illness, disease(s) or accident which has occurred prior to the start of cover.

Conclusion: Your mutual fund investments are for your long term financial planning goals and term plan is ideal for your life coverage. Investing through SIP is the best and proven way for long term wealth creation. Therefore, before choosing a SIP plan on the basis of SIP INSURE or CENTURY SIP features should not be the only criteria. The criteria for selecting a good SIP fund should be judged only on the merits of the funds, fund manager and the AMC or past performance and objectives of the fund. But, if the right fund chosen for your SIP also offers free life coverage then why not opt for it? Your financial advisor may help choose the right fund and also tell you if it is offering free life Insurance or not.

MUTUAL FUND LINKED DEBIT CARDS – Bank Debit cards are incredibly handy for daily expenses and general cash withdrawal needs. They provide the flexibility to withdraw cash from ATM or to make purchase at merchant establishments. But most of the investors do not know that the use of these debit cards is not confined to bank accounts only. A few mutual funds have also started issuing Debit Cards for ease of transactions and as an additional facility to the Investors. Today we will examine ANY TIME MONEY CARD issued by Reliance AMC.

Reliance Mutual Fund offers Reliance Any Time Money Card, linked to mutual fund schemes offering investors instant access to their investments. The card will allow investors to withdraw / spend against their mutual fund investments by providing them access in Visa-enabled ATMs and merchant outlets across India. Therefore, it essentially combines the benefit of investments along with the convenience of a debit card. Following are the key features of the Reliance Any Time Money Card which is co branded with HDFC Bank –

  • The card offers investors the benefit of Mutual Fund Investments along with the convenience of debit cards.

  • The Primary scheme account on the card can only be either Reliance Liquid Fund – Treasury Plan / Reliance Liquid Fund – Cash Plan or Reliance Money Manager Fund. It is mandatory to have one of these schemes as the primary scheme account in order to apply for the card. Additionally, other select debt and equity schemes can also form part of this card

  • It allows cash withdrawal and transaction in Point of Sales (PoS) terminals in Visa-powered ATMs / PoS terminals

  • Allows Balance Enquiry in Visa-powered ATMs

  • Investors have the choice to withdraw from any scheme linked to the card in HDFC Bank ATMs

  • In non-HDFC Bank ATMs and PoS terminals, transaction will happen only through Primary Account. (i.e Reliance Liquid Fund – Treasury Plan / Cash Plan or Reliance Money Manager Fund)

  • Card will offer instant liquidity to the unit holder up to a permissible limit as fixed/ determined by the Bank for ATM cash withdrawals or 50% of the balance in the scheme or Rs. 50,000 (whichever is lower) as set by Reliance Mutual fund, per day, from time-to-time, whichever is lower.

  • Investors will be able to spend up to 50% of the balance in the primary account or Rs. 100,000 per day (whichever is lower) at PoS terminals

  • Reliance Any Time Money Card, provides unit holders of liquid funds the dual benefit of a possible higher returns than money parked in a bank account without compromising on liquidity. The card offers liquidity and features similar to regular debit card. Backed by Visa, the card can be accessed at all Visa networks in India and abroad

  • There is no cost on the card and investors can opt for the same at the time of investing.

To know more download the pdf

Conclusion: At a time when bank savings interest rates offers only between 4 -7 per cent; liquid funds on an average have given returns ranging 8 – 9.50% in the past one year which is almost double than bank savings bank account rates. As the convenience is same it may be suggested to maintain the minimum required balance in your savings bank account and invest the surplus in Liquid fund and avail the facility of this card. You may then use this card the same way you will use your bank debit card

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Pradip Chakrabarty

Pradip is a first generation entrepreneur who has built a very successful business for distribution of financial products over last 19 yrs. He is also the Founder and CEO of www.advisorkhoj.com. Pradip is well respected in the Financial Services industry and brings deep domain knowledge and leadership skills and is considered as one of the top Investment Advisors in India. He can be contacted at pradip@advisorkhoj.com

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