Investment Services

Covers in Mutual Funds

In mutual funds, covers typically refer to covering positions—a term more common in hedge funds or trading—but it can have a few interpretations depending on context:

1. Covering a Short Position
   Although rare in mutual funds (because most mutual funds are long-only), some more aggressive or flexible funds (like hedge fund–style mutual funds) may take short positions. Covering a short position means buying back the security to close that short position.
2. Insurance or Protection (Hedging)
   Some mutual funds may use derivatives (like options or futures) to "cover" or hedge against market downturns or currency risk. This is a way to protect the portfolio’s value.
3. Coverage in Terms of Fund Holdings
   Sometimes "cover" refers to the scope or coverage of investments in a mutual fund—such as sectoral coverage (e.g., IT, healthcare) or geographic coverage (e.g., global, emerging markets).

Guaranteed Return Investment Plans

Guaranteed Return Investment Plans (GRIPs), often offered by life insurance companies, combine investment with insurance protection. The coverage components in such plans typically include:

1. Life Cover
   • The policyholder gets a life insurance cover.
   • In case of the policyholder’s death during the policy term, a death benefit is paid to the nominee.
   • This is usually the higher of:
     • Sum assured on death,
     • 105% of total premiums paid,
     • Fund value (if applicable).
2. Maturity Benefit
   • If the policyholder survives the term, they receive a guaranteed maturity benefit.
   • This amount is pre-decided and does not change with market performance.
   • Often includes guaranteed additions or loyalty additions.
3. Riders (Optional Add-ons)
   • Accidental Death Benefit – Extra sum assured if death is due to an accident.
   • Critical Illness Rider – Lump sum paid on diagnosis of specified critical illnesses.
   • Waiver of Premium – Future premiums waived in case of disability or critical illness.
4. Tax Benefits
   • Under Section 80C (premium deduction) and Section 10(10D) (maturity/death benefit).

Pension Plans

A pension plan is a retirement savings program sponsored by an employer or government, designed to provide employees with income after they retire. There are two main types:

1. Defined Benefit (DB) Plan:
   • Guarantees a specific retirement benefit amount.
   • Based on factors like salary history and years of service.
   • Employer bears the investment risk.
2. Defined Contribution (DC) Plan:
   • Specifies the contribution amount (e.g., 5% of salary), not the retirement benefit.
   • Retirement income depends on investment performance.
   • Employee often shares investment risk.

Some countries or companies also offer hybrid plans, combining elements of both.

Retirement Plans

In India, retirement planning is crucial due to the lack of universal social security. There are several government-backed and private retirement schemes tailored to different needs. Here's an overview of key retirement plans available in India:

1. Employees’ Provident Fund (EPF)
   • Mandatory for salaried employees in companies with 20+ employees.
   • Both employee and employer contribute 12% of basic salary + DA.
   • Interest is tax-free, and withdrawals after 5 years are tax-exempt.
2. National Pension System (NPS)
   • Voluntary long-term investment plan regulated by PFRDA.
   • Open to all Indian citizens (18–70 years).
   • Offers equity and debt exposure with low management cost.
   • Partial withdrawals allowed; annuity mandatory on maturity.
3. Public Provident Fund (PPF)
   • Government-backed, 15-year scheme.
   • Fixed interest (updated quarterly), currently around 7%–8%.
   • Tax benefits under Section 80C and tax-free returns.
4. Atal Pension Yojana (APY)
   • Targeted at unorganized sector workers.
   • Fixed pension (₹1,000 to ₹5,000/month) after 60 years.
   • Government co-contributes for eligible subscribers.
5. Senior Citizens’ Saving Scheme (SCSS)
   • Available to individuals aged 60+ (or 55+ for retirees under VRS).
   • 5-year scheme (extendable), with interest paid quarterly.
   • Offers high safety and decent returns (interest ~8%+).
6. Mutual Funds & Retirement-Oriented Plans
   • Pension funds from mutual fund houses (e.g., HDFC Retirement Savings Fund, ICICI Prudential Retirement Fund).
   • Flexible and market-linked, but riskier.
   • Long-term tax benefits (ELSS or 80C funds) may apply.
7. Annuity Plans & Life Insurance
   • Offered by LIC and private insurers.
   • Immediate or deferred annuity plans ensure regular income post-retirement.

Tax Benefits

• Many plans (like EPF, PPF, NPS) offer deductions under Section 80C or 80CCD.
• Tax treatment varies by scheme—important to plan withdrawals accordingly.