TERM POLICY

In case of Term assurance plans, insurance company promises the insured for a nominal premium to pay the face value mentioned in the policy in case he is no longer alive during the term of the policy.

Term assurance policy has the following features:

It provides a risk cover only for a prescribed period. Usually these policies are short-term plans and the term ranges from one year onwards. If the policyholder survives till the end of this period, the risk cover lapses and no insurance benefit payment is made to him. The amount of premium to be paid for these policies is lower than all other life insurance policies. As savings and reserves are not accumulated under this policy, it has no surrender value and loan or paid-up values are not allowed on these policies. This plan is most suitable for those who are initially unable to pay high Premium When income is low as required for Whole Life or Endowment policies, but requires life cover for a high amount.

WHOLE LIFE POLICY

This policy runs for the whole life of the assured. The sum assured becomes payable to the legal heir only after the death of the assured. The whole life policy can be of three types. Ordinary whole life policy – In this case premium is payable periodically throughout the life of the assured. Limited payment whole life policy – In this case premium is payable for a specified period (Say 20 Years or 25 Years) Only. Single Premium whole life policy – In this type of policy the entire premium is payable in one single payment.

ENDOWMENT LIFE POLICY

In this policy the insurer agrees to pay the assured or his nominees a specified sum of money on his death or on the maturity of the policy which ever is earlier. The premium for endowment policy is comparatively higher than that of the whole life policy. The premium is payable till the maturity of the policy or until the death of the assured which ever is earlier. It provides protection to the family against the untimely death of the assured.

HEALTH INSURANCE SCHEMES

An individual is subject to uncertainty regarding his health. He may suffer from ailments, diseases, disability caused by stroke or accident, etc. For serious cases the person may have to be hospitalized and intensive medical care has to be provided which can be very expensive. It is here that medical insurance is helpful in reducing the financial burden. These days the vulnerability to lifestyle diseases such as heart, cancer, neurotic, and pollution based, etc are on the increase. So it makes sense for an individual to go for medical insurance cover.

JOINT LIFE POLICY

This policy is taken on the lives of two or more persons simultaneously. Under this policy the sum assured becomes payable on the death of any one of those who have taken the joint life policy. The sum assured will be paid to the survivor(s). For example, a joint life policy may be taken on the lives of husband and wife, sum assured will be payable to the survivor on the death of the spouse.

WITH PROFIT AND WITHOUT PROFIT POLICY

Under with profit policy the assured is paid, in addition to the sum assured, a share in the profits of the insurer in the form of bonus. Without profit policy is a policy under which the assured does not get any share in the profits earned by the insurer and gets only the sum assured on the maturity of the policy. With profit and without profit policies are also known as participating and non –participating policies respectively.

DOUBLE ACCIDENT BENEFIT POLICY

This policy provides that if the insured person dies of any accident, his beneficiaries will get double the amount of the sum assured.

ANNUITY POLICY

Under this policy, the sum assured is payable not in one lump sum payment but in monthly, quarterly and half-yearly or yearly installments after the assured attains a certain age. This policy is useful to those who want to have a regular income after the expiry of a certain period e.g. after retirement. Annuity is paid so long as the assured survives. In annuity policy medical checkup is not required. Annuity is paid so long as the assured survives.

POLICIES FOR WOMEN

Women, now a days are free to take life assurance policies. However, some specially designed policies suit their needs in a unique manner; the synopsis of some these policies are as follows:

Jeevan Sathi is also known a Life Partner plan where the husband and wife are covered under this endowment policy, which gives the following benefits. On maturity, provided both are alive, full sum assured with bonus is paid. On the death of one of the assured during the period of the policy, basic sum assured is paid to the surviving partner, who is not required to pay any further premiums. The surviving partner remains covered for the full sum assured. If she/he dies, then the sum assured is paid to the nominee, but this is before the maturity date. The surviving partner will be paid sum assured with bonuses if he survives till the maturity date. Hence this policy gives a comprehensive family protection. Jeevan Sukanya is highlighted by the following points. Only female child aged between 1 to 12 years is covered in this plan. band is automatically covered under the policy after marriage. Risk of the child starts either after 2 years of taking the policy or not before the age of 7, whichever is early. Premium paying period is 20 years minus age at entry. On surviving the age of 20, the life assured receives the sum assured as survival benefit and the policy continues to cover the life assured till maturity date when vested bonus will be paid only. If life assured dies before maturity, sum assured with bonuses will be paid.

GROUP INSURANCE

Group life insurance is a plan of insurance under which the lives of many persons are covered under one life insurance policy. However, the insurance on each life is independent of that on the other lives. Usually, in group insurance, the employer secures a group policy for the benefit of his employees. Insurer provides coverage for many people under single contract.

POLICIES FOR CHILDREN

Policies for children are meant for the various needs of the children such as education, marriage, security of life etc. Some of the major children policies are: Children’s deferred assurances, Marriage endowment and educational annuity plans, Children endowment policy.

MONEY BACK POLICY

In this case policy money is paid to the insured in a number of separate cash payments. Insurer gives periodic payments of survival benefit at fixed intervals during the term of policy as long as the policyholder is alive.

Classification based on investment objective

Apart from the above classification, mutual fund schemes can also be classified based on their investment objectives.

Equity Oriented Schemes

Growth/ Equity oriented schemes are those schemes which predominantly invest in equity and equity related instruments. The objective of such schemes is to provide capital appreciation over the medium to long term. These types of schemes are generally meant for investors with a long-term outlook and with a higher risk appetite.

Debt Oriented schemes

The main objective of debt-oriented funds is to provide regular and steady income to investors. These schemes mainly invest in fixed income securities such as Bonds, Money Market Instruments, Corporate Debentures, Government Securities (Gilts) etc. Debt-oriented schemes are suitable for investors whose main objective is safety of capital along with modest growth. These funds are not affected because of fluctuations in equity markets. However, the NAV of such funds is affected because of change in the interest rate in the country.

Balanced Fund

Balanced Funds provide the best of both worlds i.e. equity and debt. The aim of the balanced funds is to provide both capital appreciation and stability of income in the long run. The proportion of investment made into equities and fixed income securities is pre-defined and mentioned in the offer document of the scheme. This type of scheme is a good alternative for pure equity-oriented products and provides an effective asset allocation tool. These schemes are suitable for investors looking for moderate growth. NAVs of such funds are generally less volatile in nature compared to pure equity funds.

Gilt Funds

These Funds invest exclusively in the dated securities issued by the government. These funds carry a very minimal risk because they are free of any default or credit risk. However, they do carry an interest rate risk as is the case with other debt products.

Money Market / Liquid Funds

These are predominantly debt-oriented schemes, whose main objective is preservation of capital, easy liquidity and moderate income. To achieve this objective, liquid funds invest predominantly in safer short-term instruments like Commercial Papers, Certificate of Deposits, Treasury Bills, G-Secs etc..

These schemes are used mainly by institutions and individuals to park their surplus funds for short periods of time. These funds are more or less insulated from changes in the interest rate in the economy and capture the current yields prevailing in the market.

Fund of Funds

Fund of Funds (FoF) as the name suggests are schemes which invest in other mutual fund schemes. The concept is popular in markets where there are number of mutual fund offerings and choosing a suitable scheme according to one’s objective is tough. Just as a mutual fund scheme invests in a portfolio of securities such as equity, debt etc, the underlying investments for a FoF is the units of other mutual fund schemes, either from the same fund family or from other fund houses.

New Product categories

Capital Protection Oriented schemes : The term ‘capital protection oriented scheme’ means a mutual fund scheme which is designated as such and which endeavours to protect the capital invested therein through suitable orientation of its portfolio structure. The orientation towards protection of capital originates from the portfolio structure of the scheme and not from any bank guarantee, insurance cover etc. SEBI stipulations require these type of schemes to be close-ended in nature, listed on the stock exchange and the intended portfolio structure would have to be mandatory rated by a credit rating agency. A typical portfolio structure could be to set aside major portion of the assets for capital safety and could be invested in highly rated debt instruments. The remaining portion would be invested in equity or equity related instruments to provide capital appreciation. Capital Protection Oriented schemes are a recent entrant in the Indian capital markets and should not be confused with ‘capital guaranteed’ schemes.

Gold Funds

The objective of these funds is to track the performance of Gold. The units represent the value of gold or gold related instruments held in the scheme. Gold Funds which are generally in the form of an Exchange Traded Fund (ETF) are listed on the stock exchange and offers investors an opportunity to participate in the bullion market without having to take physical delivery of gold.

Quantitative Funds

A quantitative fund is an investment fund that selects securities based on quantitative analysis. The managers of such funds build computer based models to determine whether or not an investment is attractive. In a pure “quant shop” the final decision to buy or sell is made by the model. However, there is a middle ground where the fund manager will use human judgment in addition to a quantitative model. The first Quant based Mutual Fund Scheme in India, Lotus Agile Fund opened for subscription on October 25, 2007.

Funds Investing Abroad

With the opening up of the Indian economy, Mutual Funds have been permitted to invest in foreign securities/ American Depository Receipts (ADRs) / Global Depository Receipts (GDRs). Some of such schemes are dedicated funds for investment abroad while others invest partly in foreign securities and partly in domestic securities. While most such schemes invest in securities across the world there are also schemes which are country specific in their investment approach.

Real Estate Mutual Funds

Real Estate Mutual Funds or realty funds as they are popularly known are the latest addition to the mutual fund offerings in India. SEBI recently paved way for the launch of such products, by making amendments to its existing Regulations. However, real estate mutual funds are yet to be introduced in India by any asset management company. These schemes invest in real estate properties and earn income in the form of rentals, capital appreciation from developed properties. Also some part of the fund corpus is invested in equity shares or debentures of companies engaged in real estate assets or developing real estate development projects. REMFs are required to be close-ended in nature and listed on a stock exchange.

In addition to the above broad classification, mutual fund schemes can be further classified into sub-categories. Each of the sub-categories has a stated objective and caters to specific requirements of investors.

Investment options available to investors

Growth Option

Under growth option, dividends are not paid out to the unit holders. Income attributable to the Unit holders continues to remain invested in the Scheme and is reflected in the NAV of units under this option. Investors can realize capital appreciation by way of an increase in NAV of their units by redeeming them.

Dividend Payout Option

Dividends are paid out to the unit holders under this option. However, the NAV of the units falls to the extent of the dividend paid out and applicable statutory levies.

Dividend Re-investment Option

The dividend that accrues on units under option is re-invested back into the scheme at ex-dividend NAV. Hence investors receive additional units on their investments in lieu of dividends.