Reliance Mutual Fund is aggressively promoting Reliance SIP Insure now days, which provide free life insurance cover with SIPs in its equity schemes. You must have seen I never miss a chance to mention that SIP (systematic investment plan) is a great way to invest in equity. In fact I also advocate that investors must refrain mixing the 2 giants- insurance & investment. Normally when we say don’t mix insurance & investment – we were talking about any insurance policy. But does that mean we can take Reliance SIP Insure or similar schemes?
Let’s First check what is the benefit provided by Reliance SIP Insure, then we will hear to dilemma of one of such investor & finally why it is a bad idea.
What is Reliance SIP Insure
If you are a Reliance Mutual Fund Investor you must have got this message “Reliance Mutual Fund presents Reliance SIP + Insure “Aisa bhi kabhi hota hai offer”. Ab investments ko SIP mein badlo aur free life insurance pao. Conditions apply.”
Reliance SIP Insure is provided as an additional/optional feature with all equity funds of Reliance Mutual Fund. This insurance is pure term insurance (group) & the premiums are paid by Reliance AMC. (But remember there are no free luncheons)
How Much insurance one can get in Reliance SIP Insure
Insurance depends on the SIP amount & your term. Maximum Insurance one can get is of Rs 10 Lakh. (even if you are going for multiple schemes & multiple folios)
Eg. Mr XYZ have started Rs 3000 SIP in Reliance Growth fund for 15 year – sum assured in starting will be Rs 3000 * 15 years * 12 Months = Rs 540000.
If Mr XYZ dies after 5 years his family will get Rs 3000 * 10 Years * 12 Months= Rs 360000. So you can see insurance reduces with every passing month or in other words insurance cover is equal to remaining SIP payments.
You can check few more Reliance SIP Insure permutation combination in the below table.
- Investor age should be 18 to 45 to be eligible for insurance. (insurance cover will be valid upto maximum age of 55 )
- Minimum Monthly SIP amount should be Rs 1000 but there is no maximum limit.
- Minimum tenure for SIP is 3 years but no maximum tenure.
- In case of death amount will be added to the fund in the name of nominee or second holder. (but they can redeem the amount – there is a catch here*)
- There is an exit load of 2% if someone switch/redeem fund before completion of tenure. Exit load is over & above normal exit loads that schemes charges. *this rule also applies in case of death.
- Insurance will not be available in first 90 days. (except accidental death)
Investor’s Dilemma Regarding SIP Insure in Mutual Funds
I am 46 years old, working for a PSU and saving mainly for retirement corpus (10-12 yrs ahead), daughter’s marriage(10-12 yrs from now) I am investing predominantly investing in mutual fund (Both through regular SIP’s and sometime s small amount directly through online, whenever I get an opportunity for savings) and partly in shares.
I request you to enlighten me on the following:
About 1 & ½ years back, I have come across a scheme called SIP-Insure or insurance with Mutual fund with following funds
|Sl no||Fund Name||Amount of monthly SIP||Approx insurance cover|
|1||Reliance RSF equity- growth||Rs 1500.00||Rs1 to 1.5 lacs|
|2||Reliance RSF equity- growth||Rs 2000.00||Rs 1.5 to 2 lacs|
|3||Reliance growth- growth||Rs 1500.00||Rs1 to 1.5 lacs|
|4||Birla sunlife dividend yield plus||Rs 1500.00||Rs 1.5 lacs|
|5||Birla sunlife mid cap||Rs 1500.00||Rs 1.5 lacs|
Apart from Birla Sunlife dividend plus, other funds are miserably lagging behind. Usually, I try to balance my mutual fund portfolio once in six months after a thorough review of mutual fund portfolio. But I am unable to change these funds as there is clause in SIP insure that any change/switch in the SIP or Accumulated units will lead closure of insurance cover (which is group insurance – as per Birla sunlife letter).
Please enlighten me about is there any merit in continuing these sips in spite of their recent poor performance or it will be better to close and switch to good funds & lose insurance cover which is slated to be for another 10 years.
Why you should not invest in Reliance SIP Insure
My suggestion to above investor is immediately he should discontinue all these insurance policies (sorry SIPs). It is better to have small pain today then a big disappointment in future. Check reasons.
1. Your insurance can be discontinued for n number of reasons
- If you discontinue your SIP at any point of time.
- Redemption or Switch of units before term
- 2 ECS bounce
- Even Change of Bank details in auto debit/ECS mandate
2. Huge Exit Load
2% exit load if you redeem amount before the tenure – how many people will actually be able to keep amount in a single fund for 10-15 years.
Worst part is exit loads even in case of death of insured – if Mr XYZ started Reliance SIP Insure of Rs 5000 per month for 10 years. But unfortunately if he dies after 3 year – Rs 420000 will be added to his fund in name of nominee. Now if nominee would like to exit he needs to pay 2% Load.
3. Why should you remain invested in single fund for 10-15 years?
We always talk about sticking with good consistent funds for long term but what will happen if my selected fund underperforms for couple of years. If sticking to a single fund is a good choice – I think ULIP is a better option than Reliance SIP Insure. (I think this is my first ever statement in favor of ulip) You have seen the same thing in dilemma of investor.
4. Is Rs 10 Lakh a sufficient sum assured?
If we even go by rule of thumb you should have insurance around 8-10 times of your yearly income. That means if your yearly income is Rs 1 Lakh – Rs 10 Lakh is sufficient. But in this case the question is why you should invest only in 1 Mutual Fund House.
5. Death due to Pre existing diseases will not be covered
Normally in a group insurance it is expected that pre existing disease will be included.
6. Is free really free
I have taken an example for 45 year man – he want to take Reliance SIP Insure for 10 Years & monthly contribution Rs 5000. I have chosen age of 45 as it is the maximum permissible age & premium rate for this person should be highest. (Premiums I have taken from Reliance Life Insurance)
|Year||SIP (Yearly)||Insurance||Fund Value||AMC Charges||Insurance Charges||Group Insurance Premium||Exit Load|
|A||B||C||D (10% return)||E = D*1.25%||F = Age 45||G = F*50%||H = D*2%|
I have assumed that group insurance premiums will be half of individual term insurance – but normally these are 25-30% of individual term plan.
- Now let me tell you from my experience that 80-90% people will discontinue these sips before completion of term plan so they are going give 2% exit loads.
- Even if people continue their SIPs for whole term Reliance will be a clear winner with earning more AMC charges. They also need to pay less & less premium every passing year.
- In case insured dies there is very high probability that family will immediately withdraw that amount after paying exit loads of 2%. Even if they continue Reliance AMC will be earning higher AMC as now the investment amount also include the sum assured.
Always remember 2 + 1 (free) is never equal to 3. Why do you want to live in an illusion that by buying such product that you will be fully/partially insured? You buy insurance, to cover your life goals which are time bound in nature. In case if something happens to you the goals are indemnified by the insurer. Even if you get claim after spoiling your investments – do you think Rs 10 Lakh is enough to meet the future requirements of your family? Insurance is a slightly more complex matter. Do not rely on alternatives instead get your cover requirement calculated and buying a suitable Term Plan for you. A simple meal at home is always better than a Pizza Hut’s menu card.
If you agree with the views expressed in the article – must share it with your friends. Let’s save few more financial lives.