SEBI Bars Mutual Funds from Bundling SIPs with Insurance. Here is All You Need to Know

Jun 22, 2022

Listen to SEBI Bars Mutual Funds from Bundling SIPs with Insurance. Here is All You Need to Know

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In a letter to the Association of Mutual Funds in India (AMFI), SEBI has asked mutual funds to stop offering mutual fund schemes with bundled products such as insurance. This means that mutual funds will no longer be able to offer additional benefits in their existing or new schemes.

Notably, some mutual fund houses have already put this facility on hold for new investors making fresh investments via SIP due to a significant jump in claims amid the COVID-19 pandemic.

Some mutual fund houses have been bundling insurance products (life cover) with investments in their schemes via Systematic Investment Plan (SIP). This includes mutual fund houses such as ICICI Prudential Mutual Fund, Aditya Birla Sun Life Mutual Fund, Nippon India Mutual, and PGIM India Mutual Fund that render free term life insurance cover to their investors in eligible schemes who invest in SIPs.

[Read: Should You Opt for SIPs with Free Life Insurance Cover?]

These features are known by various names like SIP Insure, SIP Plus, Smart SIP, Century SIP, etc. Mutual fund houses offer bundled products with a view to attract investors to stay invested for the long term as the facility is only offered to investors who sign up for a minimum SIP tenure of 3 years.

The investor receives the insurance cover in the form of Term Insurance, which is accessible as a group insurance policy. In other words, mutual fund houses purchase Group Term Plan from insurance firms to offer insurance to investors. The insurance coverage is generally offered without any charges.

The life insurance cover is a specific multiple of the monthly SIP amount, which may vary from scheme to scheme. Generally, the life cover offered in the first year is 20 times the SIP amount. Similarly, it is 50 times in the second year, and 100 times from the third year onwards. For instance, if you opt for a monthly SIP of Rs 5,000, the life insurance cover in the first year would be Rs 1,00,000, in the second year it would be Rs 2,50,000, and from the third year onwards, it would be Rs 5,00,000.

SEBI Bars Mutual Funds from Bundling SIPs with Insurance. Here is All You Need to Know
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It is typically offered to investors between the age of 18 to 55 years in eligible schemes (usually equity schemes). The limit on the maximum life cover varies from fund house to fund house. It is generally Rs 20 Lakhs, Rs 25 Lakhs, or Rs 50 Lakhs across all schemes, plans, and folios taken together.

In case of demise of the investor, the nominee will be entitled to receive the scheme value along with the life cover.

SEBI's move will not impact existing investors who opted for insurance benefits with their investment. However, it is important to note that mutual funds can withdraw this additional feature anytime.

Additionally, the insurance cover that these schemes offer may not be adequate for your family's needs; you may have to purchase another life cover to cover the gap. Click here to calculate your total life insurance requirement.

Therefore, it is highly advisable always to separate your investment and insurance requirement, do not commingle the two. This way, even if mutual fund houses discontinue offering insurance cover, you will not have any reason to worry.

Remember that the performance of a scheme is not in any way impacted by the additional features they offer.

Thus, your investment decision should be based on the performance track record of the scheme and whether the scheme's objective aligns with your own investment objective, risk profile, and investment horizon. Click here to know how to select the best equity mutual fund schemes for your portfolio.

 

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Warm Regards,
Divya Grover
Research Analyst



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