Dalal Street Investment Journal – July 20, 2019

130 DALAL STREET INVESTMENT JOURNAL I JULY 22 - AUG 4, 2019 DSIJ. in^

Cover Story

MF page - 02

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ife insurance or mutual funds—where to invest is the
debate that is going on from more than a decade. Both
insurance and mutual funds cater to the same class of
retail investors who have certain financial goals to achieve
and along with it wish to grow the wealth over the long-term.
Over the years, both financial instruments have witnessed up and
down movements due to market fluctuations and regulations.
Things have changed a lot with respect to mutual funds in the last
couple of years such as categorisation and rationalisation of the
MF schemes, re-introduction of Long-Term Capital Gains
(LTCG) tax on mutual funds. From taxation point of view, this
change made investment in life insurance more attractive. The
sales pitch used to include tax benefits, insurance cover and
illustrations stating how investors can achieve their financial goals
by investing in life insurance policies, specifically by investing in
ULIPs (Unit Linked Insurance Plans). So, does this really hold
true? Is life insurance a better product as part of your investment
portfolio? Let's find out.

Can life insurance be really termed as investment
product?
Do not mix insurance with investment. This piece of advice

floats when you come across financial advisers. So, does it

really make sense? Yes, indeed it does. Let us first understand

what is life insurance as a product and then we would dive into

why it is wise to keep investment and insurance separate. Life

insurance is a contract between an insurer and policyholder in

which insurer guarantees payment of death benefit to the

nominees upon death of the policyholder. Simply put, life

insurance is an instrument that pays out a sum of money to the

nominee on the death of policyholder provided the policy was

active. So, the main intent of having a life insurance is to cover

the risk of life.

To diversify their offerings, insurance companies started to mix

investments with insurance to make it more pleasing for the

investors. This actually was the psychological move made by

the insurance companies not just in India but across the world.

In the pain vanilla insurance policy, you need to pay the

premium and get the insurance cover, but on survival or during

the period (provided you are alive) you won't be getting any

benefits from the insurance company. This is known as 'term

insurance'. Since, no amount was to be given to the

Investing through life insurance products is very common in India. Investors feel that they are getting

something more than a life cover. DSIJ answers the question as to whether life insurance should form a part

of your investment portfolio or not.