Monday, July 28, 2014

Wait wait wait, a Money Market Fund... with Insurance?

I have to thank Mr. Lim for writing a blog posted titled "Do not sniff at Insurance Endowment Plans" that he just wrote recently.

In his post, he said that with a single-premium plan that he took for 5 years, the IRR of his investment was a rather decent 3.04%! The amazing thing about this plan is that it is provided Death and TPD insurance coverage.

The only thing that I am wondering about is what was the underlying investment, and what portion was guaranteed and non-guaranteed.

Doing a quick check on NTUC Income, I could find no product which is the same, though there are 2 similar suspects.

DreamSaver is a regular premium paying plan that you pay for 5 years and choose whether to have it mature in 8 or 10 years. You will get insurance coverage of 105% of premiums paid during the 8 or 10 year period for Death and TPD. From what I understand, the investment is linked to the performance of the Life Participating Fund.

Next is GrowthLink and FlexiLink, both are single premium plans which allows you choose which ILP sub-fund to invest in. The only difference? GrowthLink is for cash and SRS, while FlexiLink is for CPF money. GrowthLink only insures 105% while FlexiLink insures 125% of premiums for Death and TPD. The underlying ILP funds look expensive with their sales charge, but if you're the kind that is looking to beef up your insurance coverage but still have your money invested, this is an interesting product to consider.

I would personally just split up the portions and pay for insurance and pay for investments separately, but some people like to have everything rolled into one and do away with the hassle, so I can see how people might be interested in this product.

Anyway, the main point here is that nothing quite seems attractive at all for locking away your money for so long... or is there?

I have long thought that the Phillip Money Market Fund is one of the best MMFs available on the market. I know there are 3 other ones run by Legg Mason, Schroder and LionGlobal, but I think if I am not wrong, Phillip is just marginally behind LionGlobal while offering much easier access since idle cash in your Phillip account is automatically placed in the Phillip MMF.

However, I think it is rather safe to say that there is a hidden surprise contender with all the money market funds out there now. It is none other than the MMF being offered by NTUC Income through their FlexiCash plan!

The FlexiCash plan is pretty much a straight up money market fund, no withdrawal penalties or anything of that sort, but with 1 extra bonus, they offer Death and TPD insurance of 105% of premiums paid! And finally, they are covered by the SDIC scheme, so you can safely put up to $50,000 in this product with NTUC and know that you will be able to see at least your capital back.

There are only 2 minor issues that I see with this product:

1) Comparing the returns of the money market funds, NTUC is actually just narrowly underperforming Phillip. See their end May factsheets here for NTUC and Phillip.

2) One-off flat processing fee of $20. Since minimum investment amount is $5,000, the $20 fee is effectively 0.4% which is your entire expected returns for 1 year. A larger lump-sum would be more effective.

Conclusion
Personally, I am quite amazed that I managed to uncover this hidden gem! NTUC's MMF is actually quite a decent product (the $20 one-time charge is the only thing keeping it from being AMAZING), but I think the main draw of this product is essentially the "free" insurance coverage.

If you have decided that you want to allocate a portion of your cash into a money market fund, I think that NTUC is offering a very decent product to you to park your cash with them.

Everyone should have some cash holdings with them, regardless of their situation. Other than simple working capital to have smooth cashflows in and out to operate your daily life, the emergency cash money should be tucked away separate from your easily accessible bank accounts to remove temptation, but also to yield higher interest - either in a fixed deposit or a higher yielding instrument such as this one.

Money market returns and basic insurance, what is there not to like about this product?

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