Best of both worlds

FUND LAUNCH

DSP Merrill Lynch's Super SIP offers its equity investors a life insurance cover.

The primary aim for any individual who is in the earning phase of his career must be to ensure the maximum returns from his savings, while insuring the financial security of his family.

Financial advisors normally asks investors to put their stakes in equities and equity-related securities for maximum returns and term plans for life insurance coverage. Here comes a product which combines both.

DSP Merrill Lynch Mutual Fund's Super Systematic Investment Plan (SSIP) proposes to give the best of both the worlds to investors. Through the SSIP, an investor can avail of life insurance, while taking advantage of equity market-linked returns.

Under the scheme, investments made through a monthly SIP also provide investors with a life insurance cover. The insurance cover comes from Bajaj Allianz Life Insurance Company from whom DSP Merrill Lynch Mutual Fund has procured a group life insurance policy. The insurance will be in the nature of a term policy.

According to the fund, the facility will allow investors to save regularly with a financial goal in mind, while providing life insurance to cover the likely deficit in savings because of the premature death of the investor.

"The product will encourage investors to invest systematically in equities and, thus, benefit from the twin concepts of rupee cost averaging and compounding," says S Naganath, president and chief investment officer of DSP Merrill Lynch Fund Managers.

The offer is available for anyone who falls in the age group of 18 to 43. The life insurance cover for the initial 12 months is a nominal Rs 1,000. Life insurance cover for the sum assured starts in the 13th month, following the first SSIP installment and remains until the end of the relevant tenure.

Under the facility, investors will have two broad options "� a variable cover, which is available for tenures of six, 11 and 16 years and a fixed cover, which is available for 21 years. Under the variable cover option, the amount of life insurance cover reduces each month as your wealth increases through SSIP. This is to reflect the reducing insurance need with increasing wealth.

For example, under an SSIP of Rs 5,000 per month for six years (or 72 months), an investor will get insurance cover of 3.6 lakh (Rs 5,000 x 72 months). In the next month, his insurance cover will reduce by Rs 5,000 to Rs 3.55 lakh (Rs 5,000 x 71 months) and so on.

In the event of the investor's death anytime during the tenure of his SSIP, he will get the sum assured, which will be over and above the value of his investments in the funds which he has chosen to invest.

The schemes where investments can be made are DSP Merrill Lynch's TIGER Fund, Opportunities Fund, Top 100 Equity Fund and Equity Fund. Investors will also have the option of switching among them anytime and any number of times without charge.

Under the fixed cover option, the amount of life insurance cover, equivalent to 240 times your monthly investment, or 20 times your yearly investment, remains constant throughout the savings period.

For example, if you chose to invest Rs 5,000 under the fixed cover option, your insurance cover will be Rs 5,000 x 240 "� that is, Rs 12 lakh. For those individuals who desire a higher insurance cover, the fixed cover option is preferable.

It also provides for liquidity as an investor can withdraw his investments without loss of the life insurance cover, where one can withdraw any amount under the variable cover option and up to the capital appreciation after three years under fixed cover option.

The scheme will provide life insurance up to Rs 20 lakh with no medical check-up, subject to providing a declaration of good health. This is a big advantage for investors, because under normal insurance policies, one has to go through a proper medical checkup, apart from the fact that medical problems will entail a higher premium.

A comparison with ULIPs
The cost of SSIP will also be higher compared to normal SIPs offered by mutual funds.
 

Comparing costs
Option	Tenures	Entry load (%)	Entry load for SIP (%)	Incremental cost for SSIP (%)
Variable cover	6 years	2.25	1.00	1.25
	11 years	2.50	1.00	1.50
	16 years	2.75	1.00	1.75
Fixed cover	21 years	5.00	1.00	4.00

However, in comparison to an insurance term policy, the cost of insurance for investors of all the age groups will be the same under SSIP. Under a normal term policy, a higher premium is charged from people who fall under the higher age bracket.

The concept of adding mutual fund returns to insurance is nothing new as exemplified by the success of unit linked plans (ULIPs). However, a product-by-product comparison is not possible as there are ULIPs of all hues and shapes. The differentiation may depend on which ULIP you have invested in.

On a broad range, the upfront charges (entry loads) for ULIPs (between 20 and 40 per cent) are much higher than SSIP. Even though ULIPs offer tax breaks under Section 80C, the higher upfront charges can offset your tax breaks, depending on which scheme you are invested in.

For example, if your premium is Rs 10,000 and entry charges are 20 per cent under a ULIP, you will put in Rs 8,000 effectively. Now, if you fall under the highest tax bracket, your tax savings under Section 80C will amount to Rs 3,000.

Thus you are saving Rs 3,000 while foregoing Rs 2,000 "� a net gain of Rs 1,000. On the other hand, if your ULIP charges you 40 per cent (say in capital guarantee schemes), then you make a net loss of Rs 1,000.

Another point to consider is that SSIP offers you an assured sum over and above your investment returns. Under most ULIP schemes, you have to necessarily collect the maturity proceeds, irrespective of whether the markets have done well or not.

SSIP also offers liquidity wherein investors can redeem their units any time, unlike ULIPs where your investments are locked in for a specified period.

However, investors have to remember that their investment options are limited to the various schemes offered by DSP Merrill Lynch Mutual Fund. Though these schemes have done reasonably well, they are middle-of-the-table performers at best. Equities have historically provided the best returns over a longer tenure among all asset classes.
 

How DSPML funds fared Returns in % as on August 25, 2005
Scheme	6 - months	1 - year	3 - years	Since inception
DSP ML Balanced Fund	11.64	37.43	37.68	15.81
DSP ML Equity Fund	23.00	81.99	59.39	25.43
DSP ML Opportunities Fund	18.67	65.78	59.58	24.48
DSP ML Tiger Fund	23.99	66.86	-	58.85
DSP ML Top 100 Equity Fund	14.63	52.29	-	58.70
Indices
BSE Sensex	16.60	50.54	34.81	-
Category average
Diversified	21.77	64.88	50.79	-
Balanced	14.65	41.75	33.10	-
Source: www.mutualfundsindia.com

Add the concept of systematic investment, which magnifies your return potential through rupee cost averaging apart from the power of compounding by staying invested over a long term, and SSIP looks like a product which is here to stay. The introductory offer starts on September 9 and closes on October 25, 2005.