Sebi's combo mutual fund-insurance plan likely to hit a roadblock

With multiple operation challenges, idea falls out of favour with MFs

The plan to reintroduce a combo product of insurance and mutual fund (MF) has hit a wall with several industry participants believing that it will complicate their offerings, while also leading to operational challenges.

 

The idea was being discussed by the Securities and Exchange Board of India's (Sebi's) mutual fund (MF) advisory committee, which includes officials from MFs and related businesses and institutions.

 

“The matter is most likely shelved. The belief is that MF products should remain 'true-to-the-label' investment products. In addition, the claim processing will add to the workload of fund houses and distributors,” said an MF official aware of the discussions.

 

The industry had a handful of such combo products until June 2022 when Sebi placed a ban on such offerings.

 

Former Sebi chairman Madhabi Puri Buch had first announced the possibility of re-allowing combo offerings in January 2025.

 

The idea behind the proposal was to provide a more attractive, affordable offering that reaches a broader segment of the population, she had stated.

 

While having grown at a record pace in recent years, the MF industry still lags behind other major investment avenues in terms of penetration.

 

Lion's share of its assets belongs to investors in top cities. The industry and the regulator have launched several initiatives over the years to expand the investor pool, including the recent cut in minimum investment threshold from Rs 500 to Rs  250.

 

Last month, Buch had said that the Association of Mutual Funds in India (Amfi) had submitted recommendations on the subject and that the proposal remains a “work in progress”.

 

“We operate through consultations. Our MF advisory committee has provided feedback and requested additional data. The matter will be revisited in the next meeting, so it remains a work in progress,” Buch said. The committee had met once post her statement.

 

Buch's tenure as the Sebi chief ended on February 28. Tuhin Kanta Pandey took charge as the new Sebi chairman on Saturday.

 

“The combo product was a pet project of Buch. The change of guard may also impact the prospects of the planned offering,” said another MF official.

 

During Buch's tenure, the MF industry has seen fast-track regulatory changes and initiatives.

 

In the last one year, Sebi has expanded the scope of MFs, while introducing new initiatives and opening the MF doors for new players. These initiatives include sachetisation of MF schemes, new set of criteria for passive-only fund houses and adding a new product line-up in specialised investment funds. 

Running into a snag

 

> Sebi held discussions on MF and insurance combo products

> Blended product planned with a view to expand MF reach

> Matter now likely on backburner as it fails to find support