Wednesday, January 9, 2008

Save and Be Insured

Kotak MF offer SIP with a cheap life cover

Bundling your insurance and investment needs into one is an expensive proposition as insurance policies like unit linked insurance plans that aim to meet your investment needs charge commission as high as 30 per cent. Your investment needs are well taken care by mutual funds (MF) at a much lower cost, but do you have a choice when it comes to insurance?

You may well have one now. Kotak MF has launched a facility, called Kotak Star Kid (KSK), which marries your investment as well as insurance needs into one single product and offers it to you at a lower cost. All you need to do is start a fresh systematic investment plan (SIP) in either Kotak 30 scheme or Kotak Tax Saver fund over either 5, 10, 15 or 20 years, and then appoint your child as a nominee. KSK offers you a life cover - provided by Kotak Life Insurance - at a cost of 3.25 per cent, one per cent more than a typical SIP charge (2.25 per cent). Your choice is not unlimited though; the MF has laid out the options for you depending on your age . Since KSK is aimed at fulfilling the needs of your child and also insuring them, it is open for ages between 23 and 45 years.

How much cover? At any time after the 13th month, your cover is the sum total of the remaining SIP installments. For instance, if a unit holder opts for a five-year SIP at a monthly sum of Rs 5,000. Say, he dies in the 13th month. The amount that the nominee gets will work out to be Rs 2,40,000 (60 months less 12 months * Rs 5,000). Until the 12th month, the cover is 10 times the monthly SIP value. Under both cases, the nominee will also receive the prevailing value of all the installments already made. No medical tests are required up to a maximum cover of Rs 10 lakhs; between Rs 10 lakhs and a maximum cover limit of Rs one crore, tests are mandatory. KSK does not cover existing SIPs; you’ll need to start a fresh one if you wish to opt for this facility.

KSK is akin to the Super SIP facility that DSP ML mf had launched in 2005 with minor differences. Despite being a good initiative, the product found few takers as many investors refused to commit money for long-term. Sandesh Kirkire, chief executive officer, Kotak MF however is confident that KSK will work in the market as their product is simpler to understand than Super SIP. “Also, KSK is an on-going facility and is open throughout. Unlike SSIP, we do not intend to keep it open for a limited time period”, adds Kirkire.

Should you opt for it? KSK is presently available only in Kotak 30 and Kotak Tax Saver. It’s not yet available in Kotak Opportunities fund (KOF) – the mf’s most successful fund in the past three months. Kirkire assures that KOF and a host of other Kotak schemes will soon get included in KSK. By turning the tables on insurance companies on the back of sweetening systematic investing with a cheap insurance cover, here’s one effort that ought to give a boost to the MF industry caught on the wrong side on account of aggressive mis-selling of ulips on the back of higher commission. Opt for KSK in Kotak 30 or wait till the mf includes KOF in the plan.

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