Capitalizing on recent market volatility, Putnam Investments of Boston started offering insurance on all of its funds Feb. 1, becoming the first independent fund company to offer this type of product.
"The guarantee offered by Putnam Insured Investor will offer peace of mind to investors during a time of volatile markets," said Richard A. Monaghan, chief of Putnam mutual funds, in a prepared statement. "We believe this type of investor protection option will become an industry standard in the near future."
Specifically, Putnam is marketing the product to investors with substantial accumulated wealth who want to invest more aggressively with less downside risk or those who want to transfer their wealth to beneficiaries, according to Jane Mancini, Putnam's managing director of insurance products.
The product will pay a death benefit to the fund holder's beneficiaries of either the fund's maximum anniversary value or a five-percent compound annual increase on the initial investment, Mancini said. It will be available on all of Putnam's mutual funds and will cost 30 basis points for investors age 21 to 70 and 50 basis points for investors over 70. Putnam will offer the insurance through a policy issued by Allstate Life Insurance Company of Northbrook, Ill.
Putnam has high hopes for the product.
"We believe this type of investor protection will become the industry standard in the near future," Monaghan said.
But the product's cost and the rare instances in which this product is the most suitable for an investor, make that scenario unlikely, said Jim Folwell, a consultant with Cerulli Associates of Boston.
"You don't buy mutual funds for a death benefit," Folwell said. "The price you pay for this is pretty expensive. If you are in your thirties, it would be better to take what you would be paying for this and reinvest it in a regular mutual fund. But if this is your only source of a legacy to leave behind, I guess it might be worth it. It's like an extended warranty. If you cash in on it, it's worth it, but the percentage of people that will cash in is the question. I don't know if I would call it the wave of the future."
But if Putnam throws its marketing weight behind the product, the firm should have considerable success selling it, Folwell said.
"I think Putnam will market the product well," said Folwell. "Selling asset protection makes it a great sales tool. Combining a mutual fund and a death benefit make it very convenient."
Mancini declined to comment on how Putnam would advertise and market the product.
Putnam joins Prudential of Newark N.J., American Skandia Life Assurance Society of Shelton, Conn. and SunAmerica of Los Angeles in having insured mutual funds.