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Mutual fund houses woo clients with a free term cover


Financial planners are increasingly recommending investors to opt for systematic investment plans (SIPs) in mutual funds that come with a free term-insurance cover.

Currently, this is offered by three fund houses — ICICI Prudential MF, Aditya Birla Sunlife MF and Reliance MF — on select schemes in the equity, hybrid and fixed income categories.

As competition increases in the asset management space and fund houses rush to draw investors, fund managers are expected to fine-tune their offerings and more companies are expected to soon offer this to investors.

Recently, Aditya Birla SL MF expanded its product offering by adding a few more equity and fixed-income schemes and increasing the entry age for investors from 45 to 50 years.

“We are offering this to increase our market share in SIPs and increase the stickiness for an investor,” says A Balasubramaniam, CEO, Aditya Birla Sunlife Mutual Fund.

Investors gain as they get an additional term cover with no cost to them. “This term cover comes totally free to the investor, it is a win-win for him and there is no catch in it. Normally, an investor aged 25-30 years would have to pay ₹8,000-12,000 every year for a term cover,” said Rupesh Bhansali, head (distribution), GEPL Capital.

To start with in the first year, an investor gets an insurance cover of 10 times the monthly SIP instalment. This rises to 50 times in year 2 and to 100 times in year 3, with a maximum cap of ₹50 lakh per investor across all schemes. In the case of Reliance Mutual Fund, the maximum insurance offered is ₹21 lakh per investor. The group term insurance cover is provided by the group’s sister company and the AMC is the master policy holder. Typically, this insurance is offered across equity-oriented mutual fund schemes and a few debt schemes. Liquid funds and arbitrage funds do not carry this option. This benefit is available to investors aged 18 and above but less than 51 years at the time of first investment.

In case an investor stops the SIP after three years with Aditya Birla SL MF but retains the lump-sum, he would receive the insurance proceeds in the case of an unfortunate event before turning 60.

There is no additional exit load for investors, other than the exit load as applicable to the scheme. The insurance cover will not be valid if the SIP is discontinued before three years. Further, the cover shall also cease with immediate effect, if redemption/switch out/transfer out transaction is executed fully or partially.

“Just don’t do an SIP only for the free insurance cover. Ensure that it suits your objectives as this is an additional cover and not a substitute for your term plan,” said Amol Joshi, Founder, Plan Rupee.

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