SEBI’s proposal to introduce a bundled mutual fund and insurance product is facing hurdles, with the regulator’s mutual fund advisory committee struggling to implement it. The plan, which aims to offer built-in life and term insurance coverage through mutual fund schemes to improve financial inclusion, especially in rural areas, has been met with challenges.
The Association of Mutual Funds in India (AMFI) has submitted recommendations on the proposal, which have been reviewed by SEBI’s mutual fund advisory committee. However, the panel is divided on various operational details, making it difficult to move forward with the implementation.
One of the main issues raised during discussions is the handling of investors, as insurance companies have their own set of rules regarding clients’ medical tests and history. This could add significant costs to mutual funds, making it unviable to offer the product at low premiums. Additionally, there is confusion about claim processing and whether customers should contact the mutual fund house or the insurance provider in case of a claim.
Furthermore, there is a debate within the committee about extending the bundled product to health insurance. Health insurance requires more frequent claims and servicing, which could burden asset management companies with additional costs and operational challenges. Additionally, insurance underwriting involves assessing the customer’s human life value, a process that mutual fund companies may not be equipped to handle.
Overall, the mutual fund advisory committee is set to discuss these issues further in its next meeting, but there is a high likelihood that the proposal may be rejected or put on hold. The challenges surrounding investor handling, claim processing, and extending the product to health insurance have made it difficult to move forward with SEBI’s plans for a bundled mutual fund and insurance product.
