The Securities and Exchange Board of India’s (SEBI’s) plans to introduce a bundled mutual fund and insurance product is unlikely to take off anytime soon, as the regulator’s mutual fund advisory committee struggles with multiple challenges on its implementation.
Last month, SEBI had proposed allowing mutual fund schemes to offer built-in life and term insurance coverage—aimed at improving financial inclusion, especially in rural areas, by providing a low-cost bundled product. The idea is for it to be an add-on to mutual fund (MF) schemes, which would allow the insurance sector to piggyback on fast-growing mutual funds.
Since the announcement, the Association of Mutual Funds in India (AMFI) has submitted recommendations, which have been reviewed by SEBI’s mutual fund advisory committee. The panel, which advises on regulatory and developmental matters of the MF industry, has met twice to iron out operational details but remains divided.
Execution hurdles
“The main issue is dealing with investors. Every insurance company has its own set of rules about the clients’ medical tests and history. Asset management companies are equipped in investment and mutual fund servicing, and not insurance servicing,” said a senior official at a large mutual fund house aware of the discussions.
Another industry source explained, “Onboarding and servicing insurance customers will come at a significant additional cost to mutual funds, which makes it unviable to offer the product at low premiums–defeating the purpose of the bundling.”
The senior official said that discussions have been tabled for the next MF advisory committee meeting, but there is a high likelihood of the idea getting rejected or not moving forward any time soon.
Another sticking point is claim processing. Whether customers should contact the mutual fund house or the insurance provider in case of a claim?
There is also a division among the committee members over the feasibility of extending the combo product to health insurance. Unlike term or life insurance, health insurance requires more frequent claims and servicing, which could add to AMCs’ costs and operational burden.
Insurance underwriting typically involves assessing the customer’s human life value—a calculation based on age, income, dependents, liabilities, medical history, and other factors to determine the sum assured at onboarding. AMCs lack the infrastructure to handle these assessments and may struggle to manage policy servicing alongside fund operations.