Given the number of investment products available in the market, many consumers get confused due to the lack of clarity on the same. While every product serves different purposes and is suitable for different users, it is important to understand what it offers. There are different types of investment that fit the needs of different investors. A life insurance policy is essential for individuals of all ages. An endowment policy is an important part of a life insurance policy and requires a thorough understanding. It is a policy, which agrees to pay a specific amount either at the time of maturity of the policy or on the death of the policyholder, whichever takes place earlier. It is a life insurance policy, which gives you a combination of an insurance cover and a savings plan. You need to save consistently for a specific period and enjoy higher returns on the policy.

The tenure of the policy varies from one plan to another and the benefits are tax-free. You have the right to sell or surrender the policy before the end of the tenure but it might not fetch you a high amount. Hence, it is best to sell the policy after a specific period to get a higher amount from the same.

Different types of endowment investment plans

It is important to understand the different types of policies available for you. When it comes to endowment policies, listed below are five different types you need to be aware of.

1. Non-profit endowment policy

In this particular policy, there is a lump sum amount, which is promised to be paid to you at the time of maturity of the policy or death, whichever happens earlier.

2. Traditional endowment plan with profits

This is a variant of life insurance policy, where you will receive an assured amount of money at the end of the policy term or at the time of your death. However, there is a clause, which is important here. The maturity amount will rise, as you get regular bonuses, which are guaranteed. There are also certain cases where a non-guaranteed bonus is applicable. It is known as a terminal bonus and the same is paid when the tenure of the policy ends. For people who are buying the policy with a specific objective like generating regular income or making a loan repayment, this option is the best.

3. Low-cost endowment policy

In this policy, you get a mix of the traditional plan with the profit endowment feature. Here, the expected growth rate matches with the amount of mortgage and a reduction in the term will ensure that the mortgage amount will be paid out as the minimum amount in case of death of the insured.

Now, if the amount assured has risen to a specific rate, this particular amount will enable you to make the payment of an outstanding loan. If there is a decline in bonus rate, there will be no surety that the amount of return generated will be enough to make up for the outstanding amount on the mortgage. This policy will give a guaranteed level of the death benefit, which will be enough to make the payment of an outstanding loan.

4. Unit-linked endowment policy

With this policy, no particular amount is committed at the maturity. The tenure of the policy and the mortgage tenure are equal and the premium amount will be used to purchase units from a policy as mentioned by the policyholder. The same units are then canceled to buy a life cover. The maturity amount of this particular plan will depend on how the purchased units perform. Hence, there is no guarantee that the maturity amount will be high enough for you to make the loan repayment. Now, in the case of the death of the policyholder, there is a guaranteed amount, which is equal to the outstanding loan amount.

5. Traded endowment policy

You can also call it a second-hand endowment policy. In this plan, policy, the buyer will purchase the policy at a price, which is higher than the surrender value offered by the insurance company because the policy will fetch a higher amount at the time of maturity. At the time of purchase, the rights and benefits will be transferred to the buyer, and in case of death of the policyholder, the buyer will get complete benefit from the policy without any claim from the beneficiaries of the deceased.

Endowment plan is considered the best investment option in India but you need to compare the plans before making a buying decision. Keep your financial goals in mind and consider the amount you may need in the future. Based on the same, you will be able to decide the premium amount and the tenure of the policy. Endowment policies allow you to make an investment with high returns. When you choose an endowment plan, you can secure yourself manage to meet the various financial needs like education and buying a house.

Mutual Funds are the buzzword when it comes to investing in the stock market. The popular advertising campaign, ‘Mutual Funds Sahi Hai’ has fueled a lot of interest for mutual funds but not many people know what a mutual fund is and how it works. Investing in mutual funds is easy, and with minimum investments being Rs. 500, it is the most convenient way to invest in the stock market and gain from the increases there.

Here is a handy guide for those looking to understand the basics about mutual funds.

What is mutual fund?

A mutual fund is a collective fund where people pool their resources together. Different investors invest money in a fund. The fund takes the money so collected and invests it in different assets. The growth of these assets is represented as a growth in the value of a mutual fund.

For example, an equity mutual fund invests a majority of its funds in different types of equity shares. A debt mutual fund, on the other hand, invests in different debt instruments. Hybrid mutual funds invest partly in equities and partly in debt instruments.

The increase in the value of assets that the fund invests in is translated into an increased Net Asset Value [NAV] or price of the mutual fund. For example, if an investor invests in an equity mutual fund at the price of Rs. 50 per unit and the price increases to Rs. 52 in a few months. The investor has gained Rs. 2 per unit of the mutual fund.

A mutual fund could prove less risky than investing directly in the stock market, especially for beginners.

You can get investment advice from Kotak Securities to help you make the right choice. Now that you have an idea about what is mutual fund, you can make the right investment decision.

How can you invest in mutual funds?

There are two ways to invest in a mutual fund:

• Systematic Investment Plan [SIP]
• Lumpsum investment

In a Systematic Investment Plan, a certain decided amount is invested every month in the mutual fund. The benefit of investing regularly is that the cost gets averaged over a longer period of time. More units are purchased when the price is low and less units when the price is high. Thus, the results are averaged out and this could result in a lower cost per unit and higher gains.

A lumpsum investment is when a one time investment is made in the particular mutual fund. You could also benefit from lumpsum investment as mutual funds are known to fetch you substantial returns. Returns that have the potential to beat inflation better than most other investment avenues.

If you are wondering what is mutual fund investment, you now know the types. You can accordingly make an investment decision.

How mutual funds work

As discussed earlier, mutual funds India gather resources from a pool of investors. These resources are invested in different assets. Depending on the type of mutual fund, the income earned by the fund on its assets is either

• Distributed to the investors as dividend income [Income plans of mutual funds]
• Reinvested in the mutual fund to grow the investment [Growth plans of mutual funds]

Mutual funds work on the principle that collective funds can grow more than individual investments. Since mutual funds are professionally managed, the investment decisions are researched, leading to a higher chance of growth for the investors.

Mutual funds also offer the investors liquidity. It is easy to sell these fund units at any time and exit from the scheme. Since these funds can be converted to cash at any point of time, they are preferred investments.

Investing in mutual funds is very convenient. Open your demat account today with brokerage firms such as Kotak Securities and invest in a mutual fund and watch your money grow. Mutual funds India are ‘sahi hain’ indeed.