How to Manage Your Mutual Funds and Insurance

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Investment choices should be made to help you fulfill your short-term and long-term financial goals. If you are investing in mutual funds, you should exercise caution. Even though you invest money for growth and investments, the returns are better utilized when you have outlined your specific goals. You should be aware of the right funds and investment horizons as well. If you have made mistakes in the selection of mutual fund schemes, the same mistakes should not be repeated with your insurance products.

Investment in equity funds

Equity funds pose the highest level of risk. If you chose equity funds, the investment horizon should be long enough to absorb the fluctuations in the market. There are funds with 3 year lock-in periods. If the market is doing well, chances are that you will earn huge profits in a short period. In fact, the amount may even be doubled in three years. On the other hand, the growth will be little or nil when the market is in a slump. Hence, you should stay invested for at least 5 to 10 years to absorb market fluctuations.

Lump sum vs. SIP

Instead of investing a lump sum, you can choose a SIP (Systematic Investment Plan) so that the Net Asset Value price will be averaged over the years. The purchase price will decrease and you can achieve higher returns without easily.

Number of funds

Instead of choosing a number of equity funds, you can choose two or three of the best performing mutual funds. If you choose a number of mutual funds, it will be difficult to track the results. If you want, you can switch from one fund to another fund later.

Similarly, you should not over-diversify your insurance products as well. The number of insurance policies should be in single digits. It should not be a double-digit number.

Appropriate product

The insurance agent might tempt a customer to buy an unnecessary product to get a commission from the insurance company. Hence, you should choose the right kind of insurance product, as per your age, risk coverage, premium term, policy term, and life goals.


ULIPs offer better investment capabilities. You will get an exemption on the principal, interest and the maturity amount as well. These plans can be selected as per your goals in life. You will be able to provide an education to your child without any stress by choosing a child education product.

If you invest in a mutual fund, you will get monetary benefits in terms of growth. By investing in a ULIP, you will get risk coverage, substantial capital growth and income tax exemption. Further, the EEE (Exempt- Exempt – Exempt) is 100% on ULIP insurance products. Hence, you will have an edge with ULIPs compared with other mutual funds.

No capital gains

There will not be any capital gains tax on the returns of ULIPs. The maturity proceeds are tax-free in the hands of customers.

Deferred annuity vs. immediate annuity 

You should be aware of your pension benefits while buying an annuity product. If you already have some sources of income after your retirement, you can opt for deferred annuity plan. On the other hand, the immediate annuity plan will help you get a pension from the very next month.

Worth of insurance

Your insurance plan should fulfill your needs in the best possible way. You should not be under-insured or over-insured. If you are under-insured, the maturity proceeds will not fulfill your financial needs. For instance, if the death benefit does not cover the needs of dependents.

On the other hand, you will end up paying a higher insurance premium when you are over-insured. Hence, the insurance plan should be balanced as per your needs. While buying insurance products, the focus should on the coverage of risk and not on the returns.

Market-linked insurance product 

The allocation to the market-linked insurance product should be more than 20% of the overall insurance premium allocation. Thus, you can expect efficient capital appreciation. As the unit value increases, you can increase the insurance cover as well. The policy can be customized to fulfill your changing needs.

Double-digit returns

The returns on equity funds are not guaranteed. Even is a fund has earned consistent returns of 15% over the past 6 years, the returns may come down in the current year. Hence, insurance products should not be bought with the expectation of returns. If you invest in fixed deposits, the returns are guaranteed. The interest rate committed by the bank or post office will be paid without fail. The focus of insurance products should be on the coverage of risk.

Consistency in maintaining the policy

The insurance policy should be maintained well, with no lapses. You should renew the policy by paying the premium on a regular basis. The inflows into the mutual funds were very high last year, because the market was going up. However, investors have to be able to invest consistently during the downturn as well so as to maximize their returns.

While mutual fund investors pause fresh investments during market slumps, insurance policyholders should not stop paying their premium. If the premium is not paid before the grace period, the policy will be null and void. The policyholder will not get any benefits, if the premium has not been paid for at least 3 years. There are many policyholders who discontinue premium payment in less than 5 years after the subscription. This is big mistake as it can result in the termination of your life/health cover.

Research the policy

Customers should research insurance products well. There are different kinds of insurance products that fulfill your short-term as well as long-term needs. You should be aware of your personal life insurance needs and should, therefore, subscribe to a policy that suits you best.

The information provided on the official website can be used to analyze the facts and figures of the insurance company. The information presented by insurance aggregators will help you understand the features and benefits so that you can make the most of your investments.

Know he benefits of your policy

Before subscribing to the insurance policy, you should understand the benefits of the policy. Agents hard sell policies to meet their sales targets. Therefore, you must ensure that you understand the terms and conditions of the insurance policy. If you are not aware of the policy particulars, you can reach the customer support to get clarifications. The insurance product should cover any health risk or life risk and the coverage should be adequate. You can take advantage of the 15-day free look period and should return the policy if you are not satisfied with the terms and conditions of the policy.

The selection of an insurance product

 You should choose a fund as per your goals. Your current income, saving potential, age and risk appetite will influence your decision.

You must have access to reliable information about various kinds of insurance products. An unbiased comparison will help you understand the real worth of an insurance product. The insurance products can be compared and you can settle for the best insurance product as per your needs.

You should limit your equity mutual fund schemes to 5 or 6. If you are interested in making fresh investments, you can invest in the existing funds to optimize financial management. The results can be tracked and monitored very easily when you limit the number of schemes. Similarly, you should subscribe to a term policy, a money back policy and a unit-linked policy as per your needs.

Unit-linked policies will give you the triple benefit of income tax benefit, risk protection and capital appreciation. You can generate a corpus for your retirement fund with a ULIP annuity plan. As you pay the premium during the premium payment term, it will grow as per the market returns.

You can also invest in child plans so that you will be able to provide for all the education needs of your child, even in your absence. If the policyholder dies, the insurance company will waive off the remaining premiums. The beneficiary will get a lump sum and there will be regular payouts as per the terms & conditions of the policy. The maturity proceeds of the unit-linked policy are tax-free.


Mutual funds offer an appreciation of capital. The returns will be high when you invest in specific schemes consistently. Similarly, you should choose insurance products to cover the risk of life or health and get income tax benefits as well. You should not choose products that will leave you under-insured or over-insured. The policies’ premiums must be paid regularly and, preferably, well before their due dates. Unit-linked plans will help you reap market-linked gains and you can also maintain very high financial returns and higher risk coverage. So go forth and invest!