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Mutual funds are increasingly bundling insurance covers with SIPs to counter the growing popularity of ULIPs.

Till recently, investors seeking a life cover with a marketlinked investment plan had no choice but to turn to the popular unit linked insurance plans (ULIPs).

These have a disadvantage, though: high overheads. Investors tend to overlook these costs in a bull market, as they can afford to do so, but not in sombre and inflationary times such as the present. This calls for a cost-effective alternative that combines the benefits of both investing and insurance. Mutual funds (MFs) do just that.

MFs are increasingly bundling insurance covers with their mutual fund schemes. Reliance Mutual Fund and Birla Sun Life Mutual Fund are offering free insurance covers to investors who invest through the systematic investment plan (SIP) route. For as little as Rs 1,000 a month, which is invested in a fund of your choice, you can get an in-built insurance cover. “Investors should opt for these plans not only for the insurance cover, but also for long-term wealth creation,” says Ramakrishnan V. Nayak, Senior VP and Regional Head, Bajaj Capital.

 
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An SIP bundled with insurance comes with lower overhead costs. These may also come with entry or exit loads, which may differ from company to company. Birla Sun Life’s insurance plan, Century SIP, does not charge an exit load after the third year. Reliance MF’s insurance option, SIP+Insure, charges an exit load of 2 per cent, which is waived at maturity.

But the benefits are far greater than the cost advantage. Birla Sun Life, for instance, offers a cover that is 100 times the monthly SIP investment, if you stick with the plan for three years or more. The cover for a one-year term is 10 times the investment, and for a two-year term it’s 50 times the investment.

“In case of any eventuality, the nominee gets the sum assured, in addition to the funds’ net value,” says Nayak. This has an advantage over ULIPs, which usually give out the higher of the two—either the sum assured or the fund value.

SIP+Insure, on the other hand, offers an insurance cover that is equal to the total value of the SIP during the term. If the investor dies, the unpaid SIP amount is treated as the sum assured. The nominee can exit the scheme and redeem the units by paying a 2 per cent exit load. Says Sundeep Sikka, Deputy CEO, Reliance Capital Asset Management: “This product is targeted as a goal planning tool. In case of an eventuality, an investor’s goal will be realised through the insurance policy.”

These schemes come with an important caveat, though. According to Nayak, the life cover ceases if the units are redeemed partially or fully or when there are regular delays in paying installments. Birla currently offers insurance across six funds, but plans to extend it to all its funds. Reliance offers the insurance benefit across eight funds.