SIP is fine but how about SIP with free insurance coverage

A Systematic Investment Plan or SIP has become a preferred mode of investing in mutual fund. What works best in an SIP is the facility it provides investors to invest a fixed amount as per their choice, systematically and on a continuous basis. An investor thereby enjoys the twin benefit of rupee-cost averaging and the power of compounding. While an SIP can help to meet one’s financial goals and dreams, what could be the implications if those dreams are not protected? How can one protect one’s financial goals in the face of life’s uncertainties? What if there was a safety net?

Does industry offer such a product? It does. Some fund houses now offer insurance cover to its SIP investors at no additional cost. In case of unfortunate demise of the investor, the nominee receives the fund value and sum assured. Let us look at one such product that is Century SIP (CSIP) offered by Aditya Birla Sun Life Mutual Fund (ABSL MF). Available in a range of equity and debt schemes, investors opting for the facility get complimentary life cover on their SIP investments. Here is a quick preview of the features of the facility.

While a complimentary insurance cover is a definite plus, does it make sense to invest in these mutual fund schemes? We spoke to a few advisors to understand why they recommend CSIPs to their clients.

Nagpur IFA Bhavesh Mahavir Khetan recommends ABSL MF’s CSIP to his clients as it offers dual benefit of mutual fund (investment) and insurance (protection). Unlike most life insurance products, CSIP does not require a medical test. Moreover, the claim settlement process is simple and seamless, he added.

Similarly, Bharuch IFA Pratik Arvindbhai Shah said that CSIP has an edge over other such offerings as it provides life cover to investors, upto 60 years of age. Other products in the market only offer cover until 50 – 55 years of age, he asserted.

Shah further mentioned that facilities like these offer life cover to all irrespective of their income. “Take an example of homemakers. Homemakers do not usually avail life insurance even though it is prudent to do so. However, through CSIP, even they can avail the benefits of a term insurance while their savings can grow through the mutual fund route,” he said.

Jalgaon IFA Sunil B Kanade seconds Shah’s views. He feels that  such a facility gives investors the best of both worlds – mutual funds and insurance. His view is that even though ULIPs are positioned as an investment instrument which offers insurance, it is actually the other way round. Hence, the insurance cost is borne first and foremost by the customer. However, in the case of CSIP, the customer is primarily investing and life insurance is an additional benefit he gets, at no additional cost. Thus according to Kanade, this is a more cost effective way of managing finances.

Sambal (J&K) IFA, Balwan Singh Sambyal has observed that having an insurance cover keeps his clients motivated to invest for the long term. He further muses that investors are fickle, and tend to have a knee jerk reaction, especially when the markets are volatile. As investors invest with a dual intent of wealth creation and protection, they tend to be more persistent and stay invested for the long term. This, in turn cultivates discipline in the investor, enabling him to stay invested for a longer duration thus, allowing him to make the most of his investments.