SEBI has directed mutual funds (MFs) to stop providing insurance cover as an attraction for wooing systematic investment plan (SIP). In a direction to the Association of Mutual Funds in India, SEBI had told the industry body to notify its members to not bundle insurance facility with new MF schemes and also discontinue the option in existing schemes.
Insurance benefit was usually combined in SIPs started in equity and hybrid plans, and the asset management company paid the life insurance which is usually very low given the huge volume generated.
In a bid to make investors continue with SIP for a longer term, MFs have started combining insurance with schemes. Since most of the large fund houses have an insurance company within the group, it was sort of additional business for them.
