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A Guide to Creating Self- Insurance via Mutual Funds

by Phume Mdluli
Mutual Funds

Unprecedented times like these can prove to be the best teachers. In the era of the deadly coronavirus, people are trying to become more self-reliant or ‘Atmannirbhar’. Such desperate times nudge us towards resolve, fortitude,  conservancy, and self-reliance. They urge us to take that leap of faith during ambiguity, incline towards basics and worry only about the controllable. Fighting a faceless pandemic like COIVD-19 as a part of a crisis include a lot of tasks such as working from home, braving equity market volatility, practicing social distancing, facing bad debts and mismanagement across several finance companies and eventually suffering job contraction, pay cuts, and muted increases (if any) and incentives. Amidst all this chaos, the good news is, ‘This too shall pass’.

We should promise ourselves to come out of these unique and extremely stimulating times, emotionally and financially fitter and stronger. Following is a quick guide to creating self-insurance via mutual funds:Self-insurance, as the name proposes, is getting a particular amount ready to deal with any type of emergencies, especially medical contingencies for anyone in the family. It is particularly true for those members who may not be able to get medical insurance coverage due to various reasons.

Mutual fund investments are the perfect way to save ample to deal with medical emergencies. If you are wondering what is mutual fund, a mutual fund is a financial vehicle that pools the money of various investors to invest in securities such as bonds, stocks, money market instruments, etc. A lot of investors invest in mutual funds for the wealth appreciation it offers and owing to the various benefits of mutual funds.

The first step for this is to comprehend how much coverage your family would require. For instance, a young nuclear family would require coverage of Rs 10-15 lakhs. However, experts recommend a ratio of 5 lakh per person in the family as adequate coverage to cover the costs of hospitalisation and such.

The next step would be to start an SIP or Systematic Investment Plan. Starting an SIP in liquid mutual funds would be a good idea as they would offer the much-needed liquidity while the chance for a much better capital appreciation than a savings account. Investing in mutual funds via SIP would be particularly more helpful when one has to raise money in a short duration of time, such as under a year.

One of the biggest advantages of self-insurance is the ability to offset the rising medical costs and beat inflation in the long run. Starting earlier is always good. Even if you decide to invest about Rs 3000 per month for 15 years, you can accumulate a corpus of about Rs 14.1 to 18.2 lakhs depending on the mutual fund scheme chosen. This amount would be over and above the emergency fund necessary to run the household and bring the much-anticipated, peace of mind to you. You can also invest in mutual fund online via SIP at the comfort of your home. Happy investing!

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