Trap 14. ‘SIPs Can Give You Assured Returns Along With Insurance Cover’

Systematic investment plans (SIPs) are popular investment vehicles that allow you to invest a fixed amount regularly in mutual funds. They allow you to invest in mutual funds or stocks at regular intervals—daily, weekly, monthly, quarterly and other intervals.

However, if someone guarantees returns on SIPs and includes a health or life cover as an added benefit, it’s a potential red flag. There are 2-3 aspects of such a sales pitch that you should know about.

One, SIP is a term that usually refers to mutual fund or stock investments. So, when there is additional insurance being promised along with it, it’s most likely an insurance plan with a monthly or quarterly premium.

This often happens in the case of unit-linked insurance plans (Ulips) because it offers market-linked returns but also has a sum assured. “The mis-selling around Ulips often includes misleading promises of guaranteed returns, which Ulips cannot provide due to their market-linked nature,” says Vivek Jain, head, investments, Policybazaar.com, an insurance aggregator.

Two, SIPs, being related to stocks or mutual funds, are subject to market risks, and therefore, cannot offer guaranteed returns.

Adding a health or life insurance cover to SIPs might seem like an attractive package, but it’s essential to understand that these are separate financial products, each with its own risk profile.

Says Jain: “Buyers should be wary if someone offers SIPs with guaranteed returns as it’s a major red flag. Market-linked products like SIPs cannot promise guaranteed returns due to their dependence on market performance. One shouldn’t pay extra without fully understanding the benefits. If the product’s terms and benefits are not clear or are imposed upon the consumer, one should seek expert advice from a financial advisor.”

Any claims of SIPs offering guaranteed returns is bound to be untrue. So, you must read the fine print, ask for clarity on how returns are generated, the cost involved and consider consulting with a certified financial advisor before investing.