It all started when the Finance Act 2017 introduced long-term capital gains tax on equities. This was a golden opportunity for insurance agents to promote Unit Linked Insurance Plans (ULIPs). Insurance agents promoted ULIPs, leveraging the idea that investments in ULIPs would not be taxed. This idea induced many investors to shift to Unit Linked Insurance Plans (ULIPs).
To combat this development, Asset Management Companies of mutual funds have started offering free life cover to investors, if they opt for the Systematic Investment Plan (SIP) route, when investing in mutual funds. Now, isn’t this tempting, free life cover? But, should you really opt for a mutual fund just for free life cover?
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If you are new to investing, you might be under the impression that the free life insurance cover on SIPs is something new. But, it is not a new offering; marketers are just using another sales pitch.
Just like many other marketing gimmicks, Mutual Funds with free life cover are not free of terms and conditions. So, what are the terms and conditions of Mutual Funds with free life cover?
Free insurance is a great add-on to Mutual Funds. Investors should not invest in a mutual fund, just for free life cover. You’ve already read about the terms and conditions of such mutual fund products.
Experts on mutual funds say that investors should invest in schemes which are consistent performers. In other words, their decision should not be influenced by the fact, that a particular mutual fund is offering free life cover.
If you have already invested in such Mutual Funds, it is foolish to stay invested, just because you fear losing the life cover. If a particular mutual fund scheme is not doing too well, you should opt out. Instead, invest in such mutual fund schemes which are performing well, and avail a separate, standalone life insurance policy which will cover you adequately. Buy such a life insurance policy which is in line with your income and goals.
Mutual Funds with free insurance have some benefits:
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It is not wrong to invest in SIPs offering free insurance as long as you make the decision purely based on the merits of the mutual fund. Investing in a SIP with the main objective of availing a free insurance cover is not desirable.
As SIPs offer group insurance, there are demerits:
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