Whenever one mentions insurance along with investments, it is a unit-linked insurance plan (Ulip) that comes to mind. But this time we are not looking at investment options by insurance companies. In fact, you might say it’s the other way round.
The Birla Sun Life Century systematic investment plan (SIP) from Birla Mutual Fund aims to give investors the double benefit of capital appreciation and insurance cover. What’s interesting is that in this clubbing of insurance and investment, there is no lock-in period—the period in which the investor cannot withdraw the money (provided it is not a tax-saving scheme). If you want to pull out of the scheme at any point, you have the freedom to just stop investing and withdraw your money. Besides, the cost of providing the insurance cover is also borne by the asset management company (AMC).
Let’s look at the modalities of Birla Sun Life Century SIP. Investors who invest via SIP in any of the 18 selected equity schemes (which also include tax-saving instruments) will be entitled to a life insurance cover and the expenses will be borne by the AMC. The amount of insurance cover for the first year will be 10 times the SIP investment made by the investor. In the second year, it goes up to 50 times; from the third year, it is 100 times. In other words, a Rs5,000 monthly SIP for three years would result in a Rs5 lakh cover. There is a cap, though. The insured amount is limited to a maximum of Rs20 lakh.
In actuality, this is not a novel product. It has already been offered, with minor variations, by a number of AMCs, including Kotak, DSP Merrill Lynch and Reliance. Birla Sun Life AMC is just the latest to hop on to the bandwagon.
While we have always been against mixing investment and insurance, we are in favour of such a product simply because the insurance cover is free and the investor has total freedom with his mutual fund investments—and full transparency lets him see where his money is invested.
But where the Birla Sun Life scheme scores is that the life insurance cover continues even after the SIP is discontinued after three years. The cover, too, is quite substantial—the fund value, subject to a maximum of 100 times the SIP investments—which goes to the nominee if the investor dies when the insurance policy is in effect. On the other hand, in the case of Reliance SIP Insure (for instance), the required unpaid SIP payments (up to Rs10 lakh) are made by the AMC should the investor die during the tenure of the SIP, so that the investor’s long-term financial planning and objective of investing are continued as per the targeted time horizon.