BackSBI MF plans to hike insurance cover for its children’s benefit fund
The current cover will continue for a period of one more year starting 22 July for existing unitholders
PremiumSBI Mutual Fund has stopped life insurance cover, which it used to provide for free alongside children’s benefit plan. It also announced that it is in talks with an insurer to bring in a higher cover. The insurance cover, which was of up to ₹3 lakh per unitholder, was in the nature of personal accident and disability cover.
The cover will continue for a period of one more year starting 22 July for existing unitholders, and cease thereafter. New investors will not get it. The scheme was for parents who were investing on behalf of their children below the age of 15.
"We have taken Sebi approval for a more equity-oriented variant of the children's benefit fund. The current plan is more debt-oriented. We are in talks with an insurance company to bring back a higher cover in this scheme and also introduce it for the new scheme, which we will launch soon," said D.P. Singh, executive director and chief marketing officer at SBI Mutual Fund.
Previously, the insurance cover was given till the units were held or the child attained the age of 18. The cover was 10 times the amount invested up to a maximum of ₹3 lakh. In addition, on the death of either parent, the child would receive another 10% of the claim amount towards educational expenses.
Apart from this change, SBI has made a few other changes to the scheme. Among the important ones, the maximum age of eligibility for the child has been raised from 15 to 18 years. The plan itself has been renamed as SBI Magnum Children’s Benefit Fund—Savings Plan. Moreover, a provision for side pocketing has been introduced.
Side pocketing is the separation of a part of the portfolio in lieu of bad debt. In addition, Sebi’s recent risk containment rules for debt funds such as exposure to unlisted debt have been included in the scheme information document (SID). A lock in of five years or until the child attains the age of 18, whichever is earlier has been put into place, as per Sebi’s rules for children’s schemes. Once the child becomes 18, the parent cannot transact in the scheme for the child. All transactions get suspended till the child completes know your customer (KYV) formalities. Thereafter, the child can operate the scheme himself or herself.
"I do not recommend buying mutual funds because of the presence or absence of bundled insurance. MFs can remove these add ons at any point, without warning. Insurance should be purchased separately and only be term insurance rather than costly endowment products. The only gap that MFs fill is term cover on the life of the non-working spouse, which insurers might not ordinarily provide," said Viral Bhatt, founder at Money Mantra.
Mutual fund selection should not be affected by insurance add-ons. Insurance cover on mutual funds tends to be limited and may force you to hold on to schemes that are not otherwise performing. Only purchase insurance in case of need and focus on low cost term insurance.
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