Most of the mutual fund (MF) houses that were earlier providing a free life cover with systematic investment plans (SIPs) for some select schemes have now either discontinued or put on hold this complimentary offer to new customers.
ICICI Pru MF’s SIP Plus, Nippon India’s SIP Insure, Aditya Birla Sunlife’s (ABSL) Century SIP and PGIM’s Smart SIP facility were the well-known SIP plans that combined investments with insurance. Currently, only Nippon MF continues to offer this product to its new customers.
The free life cover offered on starting SIP investments was an attractive feature for many investors. The life cover, in most cases, was in the range of up to 100-120 times the SIP amount, subject to a ₹50 lakh limit.
For instance, a SIP amount of ₹10,000 per month could get you a free life cover of up to ₹12 lakh, subject to other conditions.
No medical test was also required to obtain a life cover except a signed good health declaration from an investor. The condition for the cover to remain active, in most cases, was that the SIP is continued for three years. Even if one discontinues the SIP after three years, the insurance cover would continue till 50-55 years age of the investor. Only in cases of redemption of SIPs before the tenure, the insurance cover ceases.
This was just an add-on feature and not in any way representative of the performance and return-generating potential of the fund.
Saugata Chatterjee, chief business officer, Nippon India MF, says, “SIP Insure is an add-on feature of life insurance cover under a group term insurance provided to individual investors without any extra cost. In the unfortunate event of the demise of an investor during the tenure of the SIP, the nominee will get the insurance cover and the accumulated corpus.”
No free lunch
All the above fund houses except Nippon discontinued this offer to new customers in the last couple of years. The rise in insurance costs in the past two years could be one of the reasons for this decision by fund houses.
Note that ABSL and ICICI Pru discontinued it only for the new customers. Their existing customers, who had subscribed when the offer was active, will not be affected by this move. They will continue to have the life cover.
However, PGIM MF revoked the offer for its existing investors as well. For those who availed of the offer, the insurance cover is valid till 16 May this year and will stand withdrawn after that.
That means existing investors who are dependent on the insurance cover from investments in the asset management company (AMC)—fully or partially—have to buy a new policy to meet their requirements.
This drives home the point that one can’t depend on the add-on features offered by MFs for their financial requirements other than the investments made.
Talking about the add-on features by the fund houses, Santosh Joseph, founder and managing partner, Germinate Investor Services, LLP, said “MFs can withdraw these add-on features anytime, if they wish to, by giving a 30-day exit option (without the exit load) to the investors”
The other important point to note is that the investors should not make investment decisions based on merely the add-on features offered on the investment products.
“Choosing a MF scheme should be based on the fund’s performance and on one’s goals, risk appetite, time horizon and asset allocation and not whether the fund is offering free insurance or not,” said Rushabh Desai, founder, Rupee with Rushabh Investment Services.
He also pointed out that fund houses discontinuing the insurance option shouldn’t be of any concern to investors.
“Even if the AMC is stopping giving free insurance ,it should not be of any worry to an investor as it is the performance of the scheme that matters the most and not the continuity of the add-on feature,” said Desai.