7 Important Secrets for one of the Valuable Financial Asset

                                   Life Insurance and MF (Mutual Fund):

 If One is Chalk, the Other is Cheese

 

Life insurers often use the slogan, “Sab se Pahele Life Insurance". 

"सब से पहले जीवन बीमा”.

For the last few years, the Mutual Fund (MF) industry has been using a slogan more vigorously, “Mutual Fund Sahi Hai.” 

"म्यूचुअल फंड सही हैI"

Both Life Insurance and Mutual Funds are reasonably powerful in the financial planning industry.

Let us understand the distinct nature and purpose of these two.

Life insurance is meant for managing risks associated with the life of individuals, in case they die prematurely or live too long.

Mutual fund is meant for increasing the wealth of individuals through pooling of investable funds.

While both focus on some kind of fund pooling, the objectives are entirely different.

There are 2 types of goals in life. Insurance goals & Investment goals.

Certain goals can be better realized through insurance. All sensitive goals of life fall under this category. There are risks that stand in the way of an individual in reaching these goals. The risk of dying prematurely, leaving behind dependents with no or little stable income is one such risk. The risk of becoming physically incapacitated or even getting deprived of proper employment opportunities at any time during active working life is another risk which can affect the education and marriage of children and proper maintenance of the family. The risk of living too long (which should otherwise be considered as God’s blessing) after retirement can also be a risk. These financial risks can be managed by various life insurance/annuity products.

Investment goals are more inspirational in nature. These can be better achieved by making regular investments in Stocks, Mutual Funds, Real Estates and Gold (physical or ETF). These are risky assets as there are strong downside risks beyond our control. However, Mutual Funds are touted as an asset class that generates wealth at a high CAGR provided the funds are kept invested for a long time. The fact is, scores of people have seen destruction of wealth even after keeping the money invested for a long time (MF consider even five years as long enough time). But, if they have taken care of insurance goals before venturing into investments in risky assets, they have at least discharged their core responsibilities towards their families and themselves too.

 Mutual Fund is one such vehicle which says “Yes, you can win. These are up for grabs for you.” That is fine but with some caveats.

We all have some insurance goals and investment goals. Insurance goals can never be compromised. One who is compromising with insurance goals is living his life dangerously.