Mutual Fund Scheme with Bundled Insurance Coverage? SEBI Says No
Moneylife Digital Team 21 June 2022
Market regulator Securities and Exchange Board of India (SEBI) has rejected a proposal by asset management companies (AMCs) to introduce mutual funds (MF) schemes with insurance features for scheme investment like systematic investment plan (SIP) insure.
In a letter to the Association of Mutual Funds of India (AMFI), the market regulator says, " is informed that no existing schemes of one which are proposed to be launched shall have bundled products, e.g. insurance features with respect to scheme investment like SIP Insure."
Some AMCs like ICICI Prudential Mutual Fund (SIP Plus), Aditya Birla Sun Life Mutual Fund (Century SIP), Nippon India Mutual Fund (SIP Insure) and PGIM-formerly Prudential Investment Management (Smart SIP) had introduced bundled insurance for SIP MF schemes. 
However, except Nippon India, no other MF house offers SIP bundled insurance to new investors. 
As reported by Moneylife, unexpectedly high claims in the wake of COVID-19 have made it unviable for MFs to continue offering group term life insurance cover to the investors in their schemes. (Read: Mutual Funds roll back free term life insurance cover with SIPs)
"Increased cost of group-term insurance post-COVID-19, higher claims and reluctance to offer term insurance based on self-declaration by individuals have led to this decision," a product manager at a domestic fund house had said.
AMCs offer life insurance cover on SIPs in particular schemes that must be in service for a minimum of 36 months. 
The free life cover is usually given to those aged below 51 on long-term SIPs in an equity scheme. The cover is 10 times the monthly instalment in the first year and rises to 50 times in the second and 100 times in the third year.
The maximum cover that an investor gets is Rs50 lakh across all schemes. In many cases, the group's sister company provides the group term insurance cover and the AMC is the master policyholder. 
For insurance bundled with SIP, the investor needs to pay a 0.5% to 0.75% additional expense ratio to ensure completion of the scheme even when the investor dies during the SIP tenure. Usually, AMCs charge an average expense ratio of 2.5% on the investment. If the investor opts for bundled insurance, then she will have to pay about 3.25% expense ratio.
However, according to experts, many insurance plans are available and investors should buy these direct plans rather than investing in MF with an insurance bundle.
3 months ago
While life insurance companies have been (mis)selling ULIPs (which are essentially collective investment schemes bundled with life cover), it is strange that Mutual Funds are not being allowed to bundle life cover with investment products. Remember first ULIP product (ULIP 1971) was introduced by United Trust of India way back in 1971 as an investment product with life cover, which used to be given under a group policy with LIC, as difference between target amount and amount already invested. So long as there in transparency in charges, Mutual Funds ought to be given freedom to offer life cover bundled with investment, albeit in association with life insurance companies. If (personal) experience with ULIP 971 is any indication, at lease charges will not be exorbitant like traditional ULIPs.
3 months ago
SEBi pl do not fall in to American traps repackaging securities rotten with normal and selling as normal
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