Executive Summary: Investing through SIPs in mutual funds is a smart way to invest regularly and build wealth. Some MF companies like Birla SunLife, ICICI Pru and Reliance offer insurance along with the MF scheme. It is not a great idea to mix MF investments and insurance as they do not serve your best interests.
Systematic Investment Plans (SIPs) are plans offered by Mutual Fund houses wherein the investor can invest a small sum on a regular basis in a MF scheme. Insurance is financial protection against unexpected unfortunate events.
Some mutual fund houses have combined both the concepts and are offering insurance wrapped funds.
Let us compare the SIP cum insurance offers of a few fund houses –
Some mutual fund houses have combined both the concepts and are offering insurance wrapped funds.
Let us compare the SIP cum insurance offers of a few fund houses –
Do Not Mix Insurance and Investment
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Name
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Birla Sun Life
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ICICI Prudential
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Reliance
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Definition
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Offers Birla Sun Life Century SIP as an add on feature on many of its MF schemes like Birla Sun Life Equity Fund, Birla Sun Life Infrastructure Fund, Birla Sun Life Monthly Income etc. This feature provides a complimentary life insurance cover.
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ICICI Prudential SIP Insure is offered as an option to MF investors in popular schemes like including, ICICI Prudential Focused Bluechip, ICICI Prudential Value Discovery, ICICI Prudential Dynamic Plan, ICICI Prudential Top 100 Fund.
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Reliance offers Reliance SIP Insure as an optional feature in equity based mutual fund schemes that provides free life insurance cover.
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Features
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For a SIP of Rs. 1000 and above, the insurance cover for
1st year -10 times the SIP amount 2nd year – 50 times the SIP amount 3rd year onwards – 100 times of the SIP amount. The amount is subject to maximum of Rs. 20 lakh per investor. It is valid till the age of 55 or till last SIP whichever is earlier. NRIs from many countries can invest in schemes with this option. |
1st year – life cover is 10 times of monthly instalment.
2nd year – life cover is be 50 times of monthly instalment. From 3rd year onwards – life cover is 100 times monthly instalment. Maximum Insurance cover provided – Rs. 20,00,000 If SIP is discontinued before completion of 3 years of investment, life cover is void. If SIP is discontinued anytime after 3 years, the investor will get a insurance cover equivalent to the value of units allotted under SIP Insure investment at the start of the each policy year, subject to a maximum of 100 times the monthly instalment. |
Term Insurance is provided.
Maximum Insurance cover provided – Rs. 10,00,000 irrespective of number of schemes, you have invested in. In case of death, the amount is added to fund in the name of nominee or second holder. |
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Waiting Period
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45 days waiting period. Death by accident covered from start of SIP.
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Waiting period – 60-90 days depending on the scheme selected. Accidental death has no waiting period.
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Insurance is not available for the first 3 months except if there is death by accident.
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Eligibility
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Minimum Age – 18 years
Maximum Age – Insurance Cover is available till the age of 55. |
Maximum age of entry – 46 years.
Minimum Tenure for insurance – 3 years. No maximum limit. Insurance cover will stop when investor turns 55 years old. |
Investor has to be between 18 and 45 years. Insurance cover available till age of 55.
Minimum Tenure for insurance – 3 years. No maximum limit. |
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SIP Amount |
Minimum – Rs. 1000
Maximum – No limit |
The minimum SIP Insure instalment is Rs 1000 for all schemes. But ICICI Prudential Tax Plan has a minimum amount of Rs 500.
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Minimum – Rs. 10000
Maximum – No Limit |
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Exit Conditions
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The schemes have an exit load of up to 2% if the investor redeems, discontinues or defaults before the SIP matures or before completing 55 years of age, whichever is earlier. In case of death too, exit charge is applicable.
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There is an exit load of 2% in case of redemption, discontinuation or death.
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An exit load of 2% is applicable in case of switch or fund redemption or death over and above the usual exit charges of the scheme.
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Our Verdict
Mutual fund investment plus insurance seems like a great offer. But there are many things to watch out for. Second and Third holders are not covered by insurance. Only the first holder is covered. Rules regarding missing SIPs are very rigid and you can easily lose the insurance cover. Insurance cover is restricted and may not be adequate for your needs. The AMC is usually never responsible for the claim, you have to deal with the insurance company.
Moreover investment and insurance should never go together. When they say, ‘free insurance’, it never really is free! For example, when you pay the SIP instalment, a part of it goes towards the insurance premium. Tomorrow if the scheme is not performing well or is not suited to your investment needs, you might want to sell it off. But because of the insurance, you are stuck. You then end up with an irrelevant investment in your portfolio or pay money to get out of it.
Mutual fund investment plus insurance seems like a great offer. But there are many things to watch out for. Second and Third holders are not covered by insurance. Only the first holder is covered. Rules regarding missing SIPs are very rigid and you can easily lose the insurance cover. Insurance cover is restricted and may not be adequate for your needs. The AMC is usually never responsible for the claim, you have to deal with the insurance company.
Moreover investment and insurance should never go together. When they say, ‘free insurance’, it never really is free! For example, when you pay the SIP instalment, a part of it goes towards the insurance premium. Tomorrow if the scheme is not performing well or is not suited to your investment needs, you might want to sell it off. But because of the insurance, you are stuck. You then end up with an irrelevant investment in your portfolio or pay money to get out of it.
Invest in a mutual fund scheme depending on your investment needs and the performance of the scheme. Buy term insurance separately for providing financial protection to near and dear ones. It is better to keep them separate and not fall for such marketing gimmicks.
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