AMCs barred from offering insurance products bundled with MFs

The Securities and Exchange Board of India (Sebi) has barred asset management companies (AMCs) in India from offering insurance products bundled with their mutual fund schemes.

Usually, under SIP insurance plans, mutual funds offer a free life cover on starting SIP investments.

In a 17 June letter, which was addressed to the Association of Mutual Funds in India (Amfi), the markets regulator observed that some of the AMCs are proposing to introduce bundled products while some existing schemes have such bundled products, e.g., insurance features with the scheme investments such as SIP Insure, etc.

“In this regard, it is informed that no existing schemes or ones which are proposed to be launched shall have bundled products,” Sebi said in the letter. The regulator has advised Amfi to communicate the decision to all the AMCs.

Mint had earlier reported that ICICI Prudential MF’s SIP Plus, Nippon India’s SIP Insure, Aditya Birla Sunlife’s (ABSL) Century SIP and PGIM’s Smart SIP facility were the well-known systematic investment plan (SIP) schemes that combined investments with insurance. To be sure, most fund houses had already discontinued their products even before Sebi’s diktat.

Meanwhile, Nippon India MF in a notice on Tuesday informed that it was stopping SIP Insure product with effect from 23 June. Existing SIPs already registered under SIP Insure will continue unchanged with insurance benefits, the fund house added.

Notably, Aditya Birla Sun Life Mutual Fund had announced that it would open its Century SIP feature for new registrations from 16 June.

The life cover, in most SIP insurance products, was in the range of up to 100-120 times the SIP amount, subject to a ₹50 lakh limit. For instance, an SIP amount of ₹10,000 per month could get you a free life cover of up to ₹12 lakh, subject to other conditions. These products were mostly provided on all equity and hybrid schemes of the fund house.  Most fund houses offered SIP insurance to people in the 18-51 age bracket investing in eligible schemes.

Mutual fund houses had added insurance benefits at no additional cost to tap into its popularity.

However, experts suggest that Investors should always separate their insurance and investment requirements.

“You never know, such bundled options can stop at any time. Go for term insurance if you have financial dependents. As far as investments go, analyze them separately and check their track record before investing,” said Viral Bhatt, founder, Money Mantra.