Yes or no? Do mutual fund SIP investors need to buy life insurance plans?

Gone are the days when gold, cash or real estate were the only investments people used to make for their future. It’s fair to say that today’s era belongs to mutual fund SIPs, which have quickly gained a lot of popularity in recent years. But do mutual fund SIP investors, who are already building wealth for the future and have the online feature of Sip return calculator, need to buy life insurance?

What not to do when investing in mutual fund SIPs

Not making continuous investment in the SIP

Given that SIPs are beneficial when you remain disciplined and begin investing a set amount at a set date and frequency—like weekly, monthly, quarterly, etc.—regardless of the current NAV or market level, stopping your SIPs without any reason and redeeming them, can be a big mistake. Aim to always continue the SIPs every time and avoid stopping them until its absolutely an emergency and you need the funds.

Not realizing the magical power of compounding.

History has clearly shown that the asset class of equities (including mutual funds) have regularly given inflation- beating returns and outperformed PPF, FDs, etc. Especially to build a sizable corpus for financial goals like down payment on your dream house, child's higher education corpus, or your retirement corpus, a long term and disciplined investment is required to enjoy compounding. So, if you do not realize the power of compounding and choose to redeem your SIPs in short term only, you can miss out on long term’s big returns.

Not buying life insurance

While its a great move to regularly invest in mutual fund SIPs to build wealth for the future, you should not commit the mistake of ignoring the importance of buying life insurance plans to secure your family’s financial future. Consider life insurance policies such as ULIPs, term insurance, money back policies etc.

Not utilizing the Sip return calculator

When investing in SIPs, do not forget to use the online Sip return calculator to get a fair estimate about the expected corpus you could accumulate through the SIPs over a period of time.

Not utilizing SIP flexibilities

While its true that once you have chosen the particular financial goals and desired corpus amount, you must choose the debit frequency of your SIP (such as monthly, quarterly or annually) depending on your financial situation, current income, and regular expenses. But keep in mind that there are flexibilities that you can utilize if required, such as pausing the SIP, restarting the SIP, stepping up the SIP, etc

Most fund houses also let you choose the top-up/step-up amount/percentage right at the start of the SIP, so guide your SIP amount going forward. Only some fund houses, meanwhile, provide the ability to step up an ongoing SIP, whereby you can periodically raise an existing SIP by a specified percentage—say, 5-10% annual increase. Still, you can align your financial goals with your present income as well as with expected yearly increases.

Not choosing direct plans over the regular ones

Unlike regular mutual fund plans wherein the intermediaries and fees connected with them are involved, direct plans let the investor buy mutual funds straight from the fund houses. Higher returns, better NAVs and lower expense ratio are some benefits direct plans offer over regular plans. Investors wishing to invest in SIPs can visit online investment portals providing direct plans, which would better illustrate their advantage. By offering automated advisory services to help every client choose the correct plans and create a portfolio, such portals also help new investors to invest in direct plans. Furthermore, these kinds of services are available completely free of charge on certain internet sites.

Not reviewing your portfolio time to time

Keep in mind that your task is not finished even after you have selected the appropriate amount of money to create a portfolio and started investing in SIPs. Review the portfolio on occasion to monitor the performance of the selected funds. You should exit such funds if your current funds have been underperforming regularly since a few quarters (at least three-four quarters), have changed their fund managers or management style. Keep checking the performance of your fund against other peer funds in its category and benchmark indices. By doing this, you will be able to properly assess the performance of your present funds and exit them timely to prevent any damage or impediment on the way your corpus is created.

Why is buying life insurance plans a necessity?

Even if you are a disciplined investor in SIPs and are even using the Sip return calculator tool effectively, it is still wise to also have life insurance. Here’s why.

-Life insurance secures your family's financial future

Whether you are salaried, self-employed or a professional, you give your family a key corpus through life insurance cover. If you die too soon, your family could find themselves in financial trouble. With life insurance, your loved ones can cover among other expenses,EMIs, and their children's education as well as marriage.

-Life insurance premiums offer tax benefits

Under Section 80C of the income tax act, the premium you pay for life insurance is qualified to be claimed as tax deduction upto Rs 1.5 lakh a year. Even the death proceeds the term insurance plan nominees get upon the policyholder's death are fully tax free.

-Life insurance offers add-on riders

Apart from the basic life insurance cover under term insurance, you can also boost your overall coverage by including add-on riders, which are added benefits, such as accident insurance, critical illness cover, etc.

-Lets you live with peace of mind

Being aware that you have adequately covered your family’s financial future through life insurance plans lets you live with peace of mind,right? In the case of your unfortunate demise, especially if you are the sole breadwinner, the assured sum would atleast help tide over the financial obligations, which would thus not let your family’s financial future remain in jeopardy.