Should you invest in SIP + Insurance schemes?


ICICI Prudential Mutual Fund, Reliance Mutual Fund and Birla Sun Life MF have launched a life insurance cover facility with most of their main Equity schemes and some Debt schemes.

What is SIP + Insurance?

There is a life insurance cover that you get for free against your SIPs in certain designated funds as long as you fulfill all the necessary conditions laid out by the MF company.

How does it work?

You can invest in the schemes that are eligible for this feature (list given at the end of this blog) and avail of the life insurance benefit.

It's a freebie add-on of sorts.

It has been designed to encourage investors to continue investing in the scheme for a long period of time and to discourage withdrawals from the scheme.

The main points of this feature for each AMC are in the table below.

SIP Insurance Details

Pros

You get some life insurance at no addtional cost. MF companies are not levying any explicit or hidden costs for this addtional feature. Investing in the Mutual Fund scheme without or without this facility costs the investor exactly the same.

There is no impact on your SIP or current investments even if your life insurance cover is cancelled. Your investments will carry on as usual and will work as a normal SIP.

Limitations

You need to set up a SIP for at least 36 months to avail of the free Life Insurance cover.

If you stop the SIP before 36 months, the Life Insurance cover stops immediately.

If you make withdrawals/switch outs (even partially), the life insurance cover stops immediately.

This effectively means you need to remain invested in the scheme till you’re 55 years old (the max age which is eligible for the particular insurance cover)!

How much is the benefit actually worth?

With a higher SIP you get a higher cover so it depends on your SIP amount.

For illustration, let's say you have a SIP of Rs 10,000.

That will entitle you to a life insurance cover of about Rs 10-12 lakhs (100x-120x of the SIP amount).

A stand-alone term life insurance cover of Rs 10-12 lakhs can be purchased for Rs 1000-1200 per annum.

So, after 3 years, you would have about Rs 3.6 Lakhs invested on which you will be getting a benefit of Rs 1200 - ***an annual benefit of just 0.3%***.

Also, note that since the life cover is capped at 25 or 50 lakhs, beyond a point the % annual benefit will go on decreasing as your investments increase but the cover remains the same.

Is it worth it?

The actual benefit of SIP+Insurance is too little to stick to the funds in case they are not the best performing funds because the benefit from investing in better performing funds will usually be more than the 0.3% that we might end up saving here.

It is important to review your Mutual Fund selection from time to time and replace the under-performing Mutual Funds with better ones.

In Goalwise we have a rigorously back tested algorithm that updates the fund selection each year, if needed.

Also, one of the big advantages of Mutual Funds is that they provide a lot of liquidity unlike other investments like real estate, LIC endowment plans.

And to lock-in your investments just to be able to avail of a term insurance is not a very good idea.

Summary

We would not recommend opting for this SIP+Insurance option.

We’d recommend keeping the products serving fundamentally different purposes separate. Mixing purposes results in sub-optimal investing and insurance decisions.

Insurance is an safety net product. It serves the purpose of guaranteeing livelihood to our loved dependents in case something happens to us. It is not supposed to be an investment. Buy a pure term life insurance (if you have dependents) and treat it like a necessary expense.

Mutual Funds serve the purpose of increasing wealth. Choose Mutual Fund schemes that are most likely to give you more profits and not because there is a life insurance cover attached to it.

List of Schemes with SIP+Insurance options

Below is the list of schemes with SIP+Insurance options available for each of the 3 MF companies below (Each MF company has named this feature differently):

Reliance SIP Insure schemes

Reliance Growth Fund
Reliance Vision Fund
Reliance Tax Saver (ELSS) Fund
Reliance Retirement Fund – Wealth Creation Plan
Reliance Retirement Fund – Income Generation Plan
Reliance Large Cap Fund
Reliance Value Fund
Reliance Multi Cap Fund
Reliance Small Cap Fund
Reliance Banking Fund
Reliance Pharma Fund
Reliance Power & Infra Fund
Reliance Consumption Fund
Reliance Focused Equity Fund
Reliance Balanced Advantage Fund
Reliance Equity Hybrid Fund
Reliance Equity Savings Fund
Reliance Hybrid Bond Fund

See details on Reliance website

ICICI Prudential SIP Plus Schemes

ICICI Prudential Infrastructure Fund
ICICI Prudential Bluechip Fund
ICICI Prudential Long Term Equity Fund (Tax Saving)
ICICI Prudential Large & Midcap Fund
ICICI Prudential Technology Fund
ICICI Prudential Exports and Services Fund
ICICI Prudential Balanced Advantage Fund
ICICI Prudential Banking & Financial Services Fund
ICICI Prudential Midcap Fund
ICICI Prudential FMCG Fund
ICICI Prudential Value Discovery Fund
ICICI Prudential Multicap Fund
ICICI Prudential Equity & Debt Fund
ICICI Prudential Smallcap Fund
ICICI Prudential Focused Equity Fund
ICICI Prudential Multi-asset Fund
ICICI Prudential Dividend Yield Fund
ICICI Prudential Equity Savings Fund
ICICI Prudential US Bluechip Equity Fund
ICICI Prudential Global Stable Equity Fund
ICICI Prudential Regular Savings Fund
ICICI Prudential Pharma Healthcare and Diagnostics (P.H.D) Fund
ICICI Prudential Manufacture In India Fund

See details on ICICI Pru website

Birla Sun Life Century SIP schemes

ABSL MNC Fund
ABSL India GenNext Fund
ABSL Dividend Yield Fund
ABSL Pure Value Fund
ABSL Small cap Fund
ABSL Equity Advantage Fund
ABSL International Equity Fund - Plan B
ABSL Focused Equity Fund
ABSL Index Fund
ABSL Midcap Fund
BSL Digital India Fund
BSL Frontline Equity Fund
ABSL Tax Relief 96 (ELSS Fund)
BSL Banking and Financial Services Fund
ABSL Equity Fund
ABSL Equity Hybrid ’95 Fund
ABSL Regular Savings Fund
ABSL Medium Term Plan
ABSL Credit Risk Fund

See details on ABSL website

Note: You can invest in these schemes without availing of the SIP Insurance option too.