Finance News

Scheme mechanism

We would look at each of the insurance features one by one, as the condition and calculation arrived at the sum insured is quite different. Taking the case of Reliance Mutual Fund's sip+insure, suppose one says an investor takes a monthly SIP of Rs 12,000 for 5 years i.e., 60 months, then the total investment would be Rs 7.2 lakh. Insurance benefit can only be availed after the natural or accidental demise of the holder.

Here, in the case of Reliance MF, one must note that one has to complete 90 days after the registration of the SIP to activate the insurance benefit. But this condition is not applicable in case of accidental death.

Now, if the holder passes away before completing the 2nd year of the SIP tenure, the sum insured can be received by the appointed nominee is the number of installments remaining multiplied by the SIP amount. If the person passes away after the completion of the 2nd year, the insurance benefit would be twice the total number of installments registered by the holder (here it is for 60 months) multiplied by the SIP amount, so the sum insured comes to Rs 14.4 lakh. Post the completion of the SIP tenure, the insurance benefit ceases to exist. (Refer to the table for detail view on the feature)

Here, after the nominee gets the sum insured, the total amount would be invested in the designated scheme. The price would be the closing net asset value (NAV) on the date of which the cheque for insurance claim settlement is received by the asset management company (AMC) from the insurance company. If the nominee redeems the balance units or switches to other schemes or a different fund house before tenure completion, an exit load of 2% would be charged. There is no exit load if redemption happens after the tenure completion.

Unlike Reliance MF, where the insurance benefit ceases after the SIP tenure, the benefit continues in case of Birla Sun Life Century SIP. The insurance benefit goes up to 100 times the SIP installment, with a maximum insurance of Rs 20 lakh. In this, the nominee will get an insurance cover of 10, 50 and 100 times of the monthly SIP before the end of the 1st, 2nd and 3rd year respectively. In addition to the insurance cover, the nominee will receive the fund value. Fund value is the value of units accumulated at the start of the each policy year. After the completion of the third year or the start of the fourth year, the nominee will still receive 100 times or the fund value, whichever is higher.

One must not forget that the exit load would be applicable if one has opted for a 15-year tenure as well and not three years as in the case of Reliance MF, which is the maximum tenure. There is no exit load in Birla Sun Life Century SIP after three years, irrespective of the how much tenure for which the SIP is taken (age limit of 55 years). Now, in both the cases, if the holder dies due to suicide or pre-existing illness, insurance benefits cease to exist.

After seeing both the schemes, Birla Sun Life Century SIP insurance feature is more beneficial to investors, irrespective of the returns delivered by a particular scheme. This benefit would be fruitful after the tenure if the fund value on the day of redemption is lower than the sum assured in the case of Birla Sun Life Century SIP. In the case of Reliance MF, the nominee gets more of a sum insured, if the demise happens after the 2nd year, since the 1st option just fulfils the need of the remaining installments. So, it would be beneficial to stay with a scheme and be a long-term investor and get the benefit of appreciation and insurance.