Mutual funds take on Ulips, pack in insurance cover with MFs

• Posted by Sindhuri G August 28, 2012 - Filed in Business - 1,928 views

  MUMBAI: Mutual funds are reviving a scheme that will compete with domestic insurers' unit-linked insurance plans - an equity product with insurance cover. This product was put on the backburner almost three years ago following the spat between market regulator Sebi and its insurance counterpart Irda after Sebi demanded part-regulation of Ulips. Soon, mutual funds, which were set to launch an equity-insurance product, also dropped plans to launch such schemes.
  
  Now, with the regulatory impasse easing, fund houses have once again started rolling out insurance-wrapped funds. Asset managers like Birla Sunlife Mutual Fund, Reliance, ICICI Pru Mutual. Kotak Mutual and HDFC Mutual among others have launched funds with insurance cover over the past two months. Fund marketers are trying to make use of the negative perception surrounding Ulips, especially about its cost structure, to push their products.
  
  "The insurance cover (with the fund) makes for a good selling point. It changes the profile of mutual funds from being a pure 'push' product to a need-based product," said Akshay Gupta, chief executive officer of Peerless Mutual Fund, which is also planning to introduce an insurance cover in some of its equity schemes.
  
  Under insurance-linked funds, the asset management company offers insurance cover to mutual fund investors at no additional cost. The fund house provides group term insurance cover (mostly life or accident cover) to all its investors. The facility is for all investors in the particular fund till the last SIP (systematic investment plan) instalment or 55 years of age, whichever is earlier. Investors are not charged for the add-on insurance cover.
  
  "That's the beauty of the product... Investors are getting insurance cover for free. In fact, they are encouraged and rewarded for remaining invested in the fund for a longer time-frame," said Surajit Misra, national head - mutual funds, Bajaj Capital. "The insurance cover is pretty handy... you are actually getting a Rs 2-3 lakh cover free of cost. A 30-year-old healthy man will have to pay a premium of Rs 2,500 to get a Rs 2 lakh cover under normal insurance," Misra said.
  
  Most funds have schemes with a maximum cover of Rs 10 lakh. These plans are structured in a way to pay out about 50-100 times the SIP amount after an investor stays invested in the fund for two to three years. The investor loses insurance cover the moment s/he redeems the money from the fund. The investors has to pay SIP instalments regularly to enjoy life cover. In general terms, the insurance cover starts after a waiting period of 60-90 days of enrollment, but in case of accidental death, the waiting period is not applicable. Most insurance-linked funds, however, do not cover death due to suicide or death due to pre-existing illness. Asset managers launch such funds to get more "sticky" money.
  
  "P-note issuance data could show a slight increase in the past two months purely because FII inflows were higher, but that is no indication that the product will see a revival," said the institutional sales head of a large domestic broker. "It looks like P-note is a bull market product".