Reliance SIP Insure – free life insurance but bad idea

By
Hemant Beniwal
60

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.

Reliance SIP Insure
Read – Ulip Vs Mutual Fund for Long Term

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)

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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.

Features of Reliance SIP Insure

  • 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%

1

60000

600000

66000

825

3822

1911

1320

2

60000

540000

138600

1733

3359

1680

2772

3

60000

480000

218460

2731

2930

1465

4369

4

60000

420000

306306

3829

2548

1274

6126

5

60000

360000

402937

5037

2200

1100

8059

6

60000

300000

509230

6365

1914

957

10185

7

60000

240000

626153

7827

1665

833

12523

8

60000

180000

754769

9435

1449

724

15095

9

60000

120000

896245

11203

1260

630

17925

10

60000

60000

1051870

13148

1097

548

21037

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.

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Hemant Beniwal
Hemant Beniwal is a CERTIFIED FINANCIAL PLANNER and his Company Ark Primary Advisors Pvt Ltd is registered as an Investment Adviser with SEBI. Hemant is also a member of the Financial Planning Association, U.S.A and registered as a life planner with Kinder Institute of Life Planning, U.S.A. He started his Financial Planning Practice & TFL Guide Blog in 2009. "The Financial Literates" is a dream & mission to make Indians Financial Literate.

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60 COMMENTS

  2. Hi Hemant
    I am totally in agreement with what you have said. I came to know about the existence of this scheme from the comment of one investor sometime back. The good thing is the age limit which automatically removes the temptation from many investors. Moreover, there will be hardly any investor willing to lock his money in one fund for such a long time.Insurance amount is insignificant to tempt any serious investor.

    • Hi Anil,
      Everyone is not rational like you – they don’t see things like this. And I must tell you many existing SIP investors are converting their normal SIPs in SIP with Insurance.

      • Hi Hemant
        Thanks! I am surprised to learn this.I agree, sometimes the investors behave in the most irrational manner.Recently I decided to take advantage of the market correction and make some investments in equity mutual funds.I visited the office of KARVY in the morning.In the past whenever I have gone to this office in the morning I have hardly found anyone there.I was surprised to see a large gathering of people there.I learnt that all those people had come to discontinue their SIPs and for redemptions.In that gathering I was the only person who had come with transaction slips and cheques to make new investments.

  3. fully agree.
    recently one scheme has been suggested to me ICICI GSIP
    will you able to guide on that
    Regards,
    Pravin

    • Hi Pravin,
      If I am not wrong this is an insurance policy – ICICI Pru Guaranteed Savings Insurance Plan

  4. really well explained! thank you. i don’t have any sip , but i got bsl dividend yield plus growth mf investment lump-sum, and perhaps there also some term insurance benefit, but i am not aware whether there is exit load , even after one year holding. i will check. recently i have commented that sometimes our financial problem is due to not figuring the actual cost of any new addition to our luxuries/necessities e.g. a family car for status or mania. the same is applicable to investment also.

    • Well said Bharat. “sometimes our financial problem is due to not figuring the actual cost of any new addition to our luxuries/necessities e.g. a family car for status or mania. the same is applicable to investment also.”

  5. We need to look at the basic purpose of insurance as a tool for contingency protection.Insurance or for that matter anything in this world will not come free.You have highlighted certain aspects which are not in the public domain, for ex., 2% exit load,stiff requirements of not changing the bank account.There are many persons who are benefitted by this s.i.p insure.You might be aware of the tragedy of 90% of the victims of u.l.i.p saga (aswathama athaha kunjaraha) which is quite rampant across the whole life insurance segment.You also might be aware of the clandestine loads in devious ways being cleverly executed.Compare this with the s.i.p insure or century s.i.p, which is free.

      • Hi Hemant,
        You are looking very correct when you say, do not mix Insurance and Investment. Are we talking about income insurance or Investment Insurance (Target based). ex. I want to make sure that after 12 years My son has enough amount for his study (Graduation) irrespective of me being in world. If I have term plan, it will be encashed immediately with no charges and my family may be misled to put money in wrong places, from where no return of even principle. It is similar to Pension Scheme.

        No talk about reduced Insurance every year.
        I was looking for a product where insurance decreases regularly as target is nearer every year(I do not know other products are there in market).

        Long tenure: LIC, other ULIPs all are meant for long term and very rarely anybody switch their money regularly/even once. In first preminum they cut nearly 20-50% of total amount which is not good as this amount was going to be invested for longest period and getting maximum returns probably. In SIM insurance type products we get very cheap insurance and cost is “stay invested”, very similar to ULIP and LICs.

        Insurance Discontinuation:
        Definitly If you default any Insurance premium in any insurance scheme, you can not continue.

        • Hi Vinay,
          I have shared what I will which is right for 90% of the people but if you are convinced that this is the right way to take insurance – you are the best judge about your personal situation.

  6. Sir,
    I have 2 sips in Reliance mf.But I am lucky_ no body contacted me for insurance.Good article.I always feel energetic after reading ur articles.
    Thanks and regards.

  7. Dear sir

    I really agree with you, if i here then i also preferred ULIP PLAN. This is very good articles.

  8. Hi Hemant..thanks for the article, a common man usually fall in trap seeing the double benefits.. but surely your words made lot of sense.

  9. Hello Hemant Thanks for the heads up. So I want to start a SIP in Reliance Equity Opportunities Fund. So should I start a SIP with Reliance AMC at all? My concern is that even if I don’t opt for SIP Insure (Thank God its Optional), doesn’t the premium paid on behalf of those who have opted for it affect the Corpus of the Fund managed by AMC. In simple words I want to make sure whether this Premium Expenditure incurred by the AMC is a part of Expense Ratio & does it affect those Investors too who have not opted for the SIP Insure? Hope I have made it clear.

    • Hi Amit
      You can start your SIP in Reliance Equity Opportunities Fund.Surely it can not affect the majority of investors who do not opt for insurance.

    • @amit
      if term insurance is optional, and you select because of its performance , then logically , the loss to who opted, could be added to who, not opted , provided the amc would not cough out all benefits such occurred in name of expenses!am i wrong, hemant?

      • Yea Thanks for the reply. But where does the AMC pays the premium from?…from its own pocket? isn’t the same deducted from NAV?

  10. Hemantji, I had a mild heart attack when I got an email from TFL with the subject line “Do not invest in Mutual Fund SIP”, LOL. After reading the complete article, I got the message right.
    Agree with you, Investment and Insurance are best performed if kept separate.

  11. I feel the article is too harsh on Reliance. Mind you i have nothing to do with Reliance but as a general reader, i am saying this.
    Each company charged 2% as exit load if one comes out of investment in less than a year. So why reliance has been targeted here?
    Plus I need to double check on the insurance cover.
    As per my information, one is given insurance cover of Total SIP Amount in first 2 years after which it is doubled.
    That means if one starts a insurance cover of 5,000 Rs for 15 years.
    Insurance cover for first 2 years will be 5000*12*15=9,00,000 Rs.
    Insurance cover after 2 years will be 9,00,000*2=18,00,000 Rs.
    I will double check on insurance cover capped at 10 lac & let you know asap…

    • I self work as mutual fund distributor…and invest 3000 per month in reliance growth fund through SIP Insure…I agree that since last few months performance is not at par but i do not think this is the reason so that I close this sip…as there are number of examples where good funds have turned bad and bad funds have turned good…currently i have accumulated just above 1,50,000 in this fund.Even if I decided to stop SIP then i will only stop the sip and will not withdraw the accumulated amount.It will not affect me so much as only cover will ceased..

      TO Rajesh Singla: Its true that after 2 years cover doubles that of unpaid sip installments but upper limit is capped at 10 lakh..

      • Hi Paresh
        After investing in equity mutual funds it is very important to track the performance of all funds in your portfolio by comparing with index and peers.If a fund consistently performs poorly over a long period of time,there is no justification in getting attached to it emotionally merely based on its past performance hoping against hope that it will turn around some day.

        • Yes its true that it is necessary to track the performance.but it should not be as frequent as we shift the jobs now a days.Its really impractical as we do not guarantee that how new fund will performed.Rather I have good diversification in my portfolio which is more important for me.

          I think portfolio stated above by hemant have a real problem of more mid cap orientation and in that context it should be reduced and good large cap funds should be added.

      • Hi Paresh/Rajesh,
        In Reliance SIP Insure (new version) insurance amount goes down with every passing month – I think you are talking about the earlier version.

        • Dear hemant,
          I was not aware of the recent changes.Earlier there was also a reducing insurance only it was twice that of unpaid installments after 2 year.

          Finally it is only extended and optional facility.I think Exit load of 2% will bind me to invest and remain invested for the entire term.

    • Hi Rajesh,
      When we talk about exit loads in equity funds – it is 1-2% for 1-2 years but in Reliance SIP Insure it is 2% even if you withdraw it in 10-15 years.
      There will an Exit Load of 2%, if the accumulated units acquired or allotted under Reliance SIP Insure are redeemed or switched out or the SIP Insure is discontinued or it is defaulted before the maturity of committed Insure tenure or before completion of 55yrs of age whichever is earlier as opted in the respective scheme either by the SIP-Insure unitholder or by the nominee, as the case may be.

  12. Excellent, thanks a lot,
    Hemant. the article give me the right prespective at the right time. The best word is “Let’s save few more financial lives”.
    Apart from the drawbacks pointed out , following conditions also apply
    1. the total insurance available is limited to Rs 10 lacs only
    2. The insurance available will increase years wise
    i,e I year for 10 times the SIP amout only .
    II year for 20 times the SIP amout only
    III year onwards for 100 times the SIP amout.

    lastly, you have not touched upon the possible under performance of Fund selected.

    • Hi Kumar,
      Your query motivated me to write this – so thanks to you.
      Your 1st pointed I have covered in article – your 2nd point feature were part of old version of SIP Insure. (new version features are totally different)
      Your final point I have tried to touch in – why one should not invest in Reliance SIP Insure. (point 2nd & 3rd)

    • Hi, Kumar,
      you are probably referring to the Insurance offered by Birla Mutual fund and the features mentioned by you in NOT by reliance….

      • yes, you are right, the features mentioned belongs to birla mutual, where as Reliance mutual covers the unsubscribed portion of SIP’S

  13. Hello Mr. Hemant & others,
    In fact I am not much aware about investments and as a layman, I have purchased LIC’s Wealth Plus- Growth in the year 2009 for premium term of 10 years @ Rs. 1.00 lach per annum with initial lock-in period of three years. I don’t know about end product after maturity period of 10 yrs but while purchasing the investment policy, the DO of LIC calculated it roughly about Rs. 24 laks at the end of 10 years. Please guide me whether I should it since the first lock-in period of three years is approching. In addition also guide me where I should invest to get good returns
    Thank you

  16. Hi Hemant,

    Thanks for the input, really nice. Last week only one of my financial consultant suggested me to apply for Reliance SIP insure.

    I was asking him for “term insurance” then he suggested me this plan saying investment + insurance, but he did not inform all the above which u mentioned. Anyways thanks for the complete info and now i decided that investment should be different and insurance should be different.

  17. Hi Hemant & Anil
    What about birla sunlife century SIP ? One of my friend is going to invest in it. I gave him suggestions don’t mix your investments with your insurance. But i don’t have any solid reason to suggest him.

    • Hi Kawardeep,
      I think I have already shared couple of reasons – same also apply to birla sunlife century SIP.

  19. Hi Hemant,

    Thanks, I was thinking of getting LIC ankur, after reading your article, I changed my mind. Please suggest other alternatives.

    Thanking you
    Jaykanath

  20. Dear Sir,

    I am paind to late you know that I invested in your SIP Policy and the premium is being deducted from my SBI Naharlagun @Rs,2000/- PM, Arunachal Pradesh A/C W.E.F July 2011 and a computer printed reciept only recieved by me from one M/S ABIRA MANAGEMENT SERVICES, KOLKATTA. I am at a lose, since I am not getting any statement of accounts from Reliance as assured by the agent when the proposal was made.Please help me sending on statement upto feb 2012 so that I do not loose trust on your esteemd company. I furnish below my e-mail with my Communication address –
    ASHUTOSH GHOSE
    c/o-R.C.S OFFICE NEAR HIGH COURT

  21. hi Hemant,

    Read your article.I was wondering if you know about Reliance Mutual Fund Investment plan?is it a good idea.

    please let me know as i would like to invest in a good company.
    Regards,
    sun

  22. Hi hemant,

    Actually i am looking on advise and more information on investments,I am a beginner to investments and would like to know if Reliance Money Manager scheme (reliance mutual fund ) is a good option to invest in or not?
    i dont want to invest in gold.So please let me know any other investment schemes that would be good for me for short term .

    Thanks
    sunita

  23. I have invested directly by going to Reliance AMC in RSF equity fund in 2009. The man in counter never told me all those hidden facts.He just said there is a free insurance for 10 Lakhs. And I have the good health declaration form and took it. My SIP is finishing in 2014 july.

    Now when this fund is performing very poor for last 3-4 years I am thinking to liquidate it. And I was just planning to discontinue the SIPs. But its my good luck that I came to this page and understood the exit load issue. Now I have taken out the documents and found that everything was written which I never gone through carefully.

    Thanks Hemant Ji, I just got the point in time before making the move.

  24. Hemant Ji,
    One thing is still not clear to me that documents says
    1) Policy tenure is 15 years from Start of SIP
    2) Exit load if the committed SIP tenure broken

    In my case committed tenure is 5 yrs. So can I liquidate after 5 yrs or have to wait 15 yrs for avoiding 2% exit load.

    Pls advice.

  25. I have started Reliance SIP Insure in year 2009. 2 schemes : Reliance growth and Reliance equity opportunities. My tenure is upto 2019. What should I do? Stop the SIP? The funds are not performing well. Pl. guide.

  26. This article is totally wrong. & Mr.hemant is not believer in Systematic investment plan because brokerage is low rather he is promoting ulip where commission more.
    But customer have to pay lot more charges.

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