Mutual fund SIP Insurance: the new marketing tool for mutual funds
In the last couple of months, mutual fund companies have been trying hard to attract fresh investments. Mutual funds aim being Systematic Investment Plans popularly known as SIP’s. Mutual funds strategies are understandable considering that equity market has eroded the gains of last few years in a matter of few months. With the stock market hitting new low, fresh investors have been a little concerned about their investment strategy, option being mutual funds, though they should be actually looking at equity at current levels with a long term strategy. However, fresh investments should be in a staggered way and systematic investment planning (SIP) perfectly does the job as it allows the investors to take advantage of market volatility. Now there is an additional carrot for investors to look at SIPs as mutual funds are offering free insurance.
The product, Mutual fund SIP insurance, is the new word in the mutual fund sector these days and as the name tells you, investor gets insurance cover for his SIP investments. At present, the mutual fund product is being offered by select funds like Reliance and Birla but it may not take long for others follow suit. The big advantage for investors in the scheme is that insurance cover is being provided free of cost and is dependent on the instalments and the value of SIP. For instance, if an investor signs up for a monthly SIP of Rs 5,000 for the next five years, his outgo would be Rs 3 lakhs over a period of five years and the mutual fund is providing life cover of Rs 3 lakhs under the scheme. In the case of Birla Mutual fund, the cover is 100 times the SIP amount.
The SIP insurance product, however, has its own set of catch lines. For instance, mutual fund houses have pegged the insurance cover at certain limit and the life cover feature is not available to all schemes though most schemes are covered. In addition, the eligibility age too is not beyond a certain limit and in the case of Reliance Mutual Fund, the maximum age for an investor is 45.
Despite these shortcomings, the mutual fund product is not a bad deal as the insurance cover is being offered without extra cost. Also, since insurance amount on mutual funds is invested in the event of death, the investor is in a way ensuring future contribution for his family. For instance, an investor with a death benefit of Rs 3 lakhs cover dies before the completion of tenure, the death benefit is transferred to the corpus of the investor and would be paid on maturity to the nominee. However, the nominee also has the option of not continuing with the policy and can take back the policy amount. In such instances, the Mjtual Fund SIP would get terminated.
Investors who are looking at Mutual Fund SIP in the current market environment can look at schemes which offer SIP insurance as it can improve the overall life cover for the investor. However, the feature should be viewed as an additional feature and should not be the main driving force for your investments. In fact, the product had faced obstacles earlier as it was referred to insurance regulator, Insurance Regulatory & Development Authority of India (IRDA). Obviously, the insurance companies had felt threatened as investors were being doled out free insurance. In fact, Mutual fund SIP insurance is similar to ULIPs where the primary objective of the later is to provide insurance cover and returns are secondary. Similarly, Mutual fund SIPs which carry insurance cover need to be looked at for their ability to offer returns. Hence, if the scheme of your choice does not offer the feature, don’t dump it.
