Systematic inevstment plans are offering free life insurance offers

Most investment advisors and mutual fund managers swear by systematic investment plans (SIPs). The idea is, of course, that you should put in money into mutual funds every month — whether the market is up or down. If you do it long enough, you are bound to come out ahead, they say.

Now, funds are wooing investors to SIPs by offering free life insurance term cover. Take Birla Sun Life Mutual Fund’s Century SIP, available in 18 of its equity schemes. DSP Merrill Lynch Mutual Fund, Kotak Mahindra Mutual Fund and Reliance Mutual Fund too have similar offers.

Says Anil Kumar, CEO, Birla Sun Life Mutual Fund: “Century SIP aims to encourage a regular savings habit, helping investors to create wealth along with an added benefit of insurance cover.”

How do these offers work? Century SIP is open to investors aged 18 to 46 years. The minimum SIP is Rs 1,000, and you must invest for three years. The life cover is up to 100 times the SIP instalment, with a maximum of Rs 20 lakh. No medical test is required.

If the investor dies in the first year, the term cover is 10 times the monthly SIP instalment. It’s 50 times of the instalment in the second year and 100 times from the third year. Suppose the monthly SIP is Rs 2,000. If the investor dies in year one, his nominee gets Rs 20,000. If he dies in the second year, the nominee gets Rs 1 lakh, and from the third year, he’ll get Rs 2 lakh. The nominee can redeem or switch the units without any exit load.

The cover lapses if the investor discontinues the SIP within three years or misses two consecutive instalments. After three years, the cover’s only valid if he stays invested, though he can stop the SIP. There’s an exit load of two per cent on redeeming within three years.

Reliance SIP Insure works differently. If the investor dies before completing his chosen SIP tenure, the insurance will cover the remaining SIP payments.

Reliance SIP Insure is available on 11 schemes like Reliance Growth Fund. The minimum investment is Rs 2,000. The minimum tenure is three years, and maximum, 15 years. The maximum life cover is Rs 10 lakh. Again, it will lapse if the investor discontinues or redeems the SIP midway.

Kotak Star Kid offers life cover for SIPs in the Kotak 30, Kotak Opportunities and Kotak Tax Saver schemes. The SIP must be for five, 10, 15 or 20 years. The minimum instalment is Rs 1,000. If the investor dies in the first year, the insurance benefit is 10 times the monthly SIP. After that, the benefit is equivalent to the remaining unpaid SIPs. The maximum cover is Rs 10 lakh with no medical examination. But Kotak levies a higher entry load of 3.25 per cent.

There are exit loads on premature redemptions.Says Amar Pandit, director, My Financial Advisory: “If an investor is committed to a scheme for the next five or 10 years, these offers make sense. But if you want flexibility, the exit load is not attractive.”