Saturday, October 27, 2007

Should you opt for HSBC SIP plus?

A SIP with a PLUS

HSBC MF offers SIP with insurance cover

Bundling your investment and insurance needs together can increase your costs. HSBC Mutual Fund (MF) has launched a new product that combines the benefits of systematic investment plan (SIP) with a free insurance cover to go with it. Called HSBC SIP Plus, it covers you from critical illnesses like cancer, major organ transplant, heart valve replacement, bypass surgery, end stage renal failure and stroke. Additionally, you are also covered for accidental death or accidental permanent total disability.

The works
All you need to do is to avail of a fresh SIP in any of its open-ended equity schemes for a period of 3-5 years, if you are between 20 and 50 years of age. Existing SIPs with the MF are not covered. The sum assured is equal to the SIP amount multiplied its total tenure. For instance, if you take a SIP of Rs 5,000 per month for five years, your sum assured will be Rs 3 lakh (Rs 5,000 * 60 months). You need to commit a minimum amount of Rs 2,000 and can avail of a maximum cover of Rs 10 lakh. The cover is available for a minimum period of three years and a maximum of five.

The cover is free of cost to you as you are required to pay an entry load of just 2.25 per cent – the same as what a regular SIP in HSBC MF would cost you. However, if you withdraw from HSBC SIP Plus before two years, you need to pay an exit load of one per cent; a regular HSBC SIP imposes an exit load of 0.5% if withdrawn before 6 months.

You don’t need to take any medical tests or submit any documents at the time of enrollment. However, pre-existing diseases are not covered, even if they are detected within the first 90 days after buying HSBC SIP Plus.

Should you go for it?
Despite a free cover, no documentation or medical tests, we find two reasons that prevent us from telling you to jump at it.

The tenure, even the maximum one of five years, is too short, especially when you buy a cover for such critical illnesses. Sanjay Prakash, CEO, HSBC MF says: “We capped the maximum tenure at five years, else investors would be wary of locking away their money for a long time.” Prakash may have a point there as in 2005, when DSP ML mutual fund (MF) launched its own DSP Super SIP – a systematic investment plan bundled with a life insurance cover for a maximum period of 21 years, there were hardly any takers, on account of a long tenure, despite being a superior and cost-efficient product.

Also, HSBC equity schemes have been in a slump for some time now. In the past one year, its best performing scheme, HSBC Equity Fund returned 54.9 per cent, as against an 80 per cent average return of the top five schemes. Although its equity schemes are in a restructuring phase and are expected to do well over the long run, they don’t, yet, make a compelling case for investment as compared to some of the better, consistently-ranked top quartile options.

Opt for HSBC SIP Plus only if you are 30 years of age or above. Although you are eligible for it from 20 years of age, chances are slim that that you will get diagnosed with any of the critical illnesses that it covers you for, at that age.

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