The Hindu Business Line : Combining gainfully

With markets in the grip of a highly volatile phase, investors are in a cautious mood and fresh inflows into funds have dwindled quite a bit. In a bid to introduce innovative products, fund houses have floated systematic investment plans (SIP) bundled with insurance. Currently, such products from Reliance Mutual Fund and Birla Sun Life Mutual Fund — Reliance SIP Insure and Birla Sun Life Century SIP — are open.

These products have both advantages and disadvantages.

On the plus side, the regular contribution over the long term helps one build wealth over the long term with the added benefit of cost averaging.

The insurance cover comes without any additional premium outgo from the investor; the cost of risk cover is borne by the AMC.

The disadvantages are the age factor (46 is the age limit) and limited risk cover. An exit load of 2 per cent of the fund value will be charged if exited before completion three years.

Birla Sun Life Century SIP

Century SIP, a systematic investment plan, can be taken with designated schemes of Birla Mutual Fund.

The SIP option is available for Rs 1,000 per month and the risk cover offered to investors grows with the tenure of the SIP.

For the first year, investors are eligible for risk cover amounting to 10 times the monthly instalment, for the second year this cover increases to 50 times and from third year onwards the cover increases to 100 times the monthly instalment subject to a cap of Rs 20 lakh.

Even if investors stop the SIP after three mandatory years, the cover continues at fund value. In case of the investor dies during the tenure of the SIP, the nominee gets the fund value as well as the insurance cover.

The cover ceases to exist if the investor makes a full or partial redemption or switches prior to completion of the SIP tenure.

The investor need not go through any medical test to get the risk cover. Any individual between 18 and 46 years of age may invest in this plan.

Reliance SIP Insure

This scheme offers life insurance cover under group term insurance as an add-on to individual investors opting for SIP in designated Reliance MF schemes.

Unlike the Birla fund, instead of paying back the risk cover to the nominee in the event of the death of the investor, it is used to pay the balance SIP amount. At present 11 Reliance Equity schemes are covered by SIP Insure.

The minimum SIP amount is Rs 2,000 but an investor will be eligible for risk cover only if he pays a minimum SIP amount of Rs 2222.

The risk cover is subject to a maximum of Rs 10 lakh. The insurance cover shall commence after a waiting period of 90 days from the commencement of SIP instalments, except in the case of death due to accident.

An exit load of 2 per cent will be charged if investments are redeemed or switched out to another scheme before maturity. In the event of death of the investor before completion of the SIP Insure tenure, the nominee has the option to redeem the amount by paying a 2 per cent charge on the repurchased units.

Comment

Since the investor has to sign a good health declaration form, it is advisable to carefully read the application form before signing.

Since the contract for the risk cover is between the investor and the insurer, if utmost good faith is not maintained, there is a possibility of rejection of claim at a later date.

When queried if investors will be eligible for the insurance cover if they contract any illness after entering the fund, both funds clarified that the insurer would still be bound by the contract, as at the inception of the SIP the investor was in good health.

Recommendation

This product is not a substitute to term assurance but can be a good product if an investor wants risk cover against financial goals of education or marriage of children.

While choosing the fund to start an SIP, investors are advised to go for diversified rather than thematic funds.

Track records of the leading equity funds managed by these houses suggest that these schemes may be a better alternative to ULIP products.

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