Systematic Investment Plans (SIPs) are hailed as the gold standard of disciplined investing in mutual funds. Their appeal lies in simplicity: small, regular contributions, rupee-cost averaging, and long-term compounding. For millions of Indian households, SIPs represent the first serious step into financial markets.
Yet, this very trust has been exploited. Instead of selling SIPs as standalone products, banks, distributors, and agents often bundle them with useless financial add-ons — overpriced insurance, high-cost credit cards, or irrelevant advisory packages. These bundles erode returns, confuse investors, and enrich only intermediaries.
This article investigates how SIPs are bundled with junk products, the tricks used to push them, the hidden costs, and the devastating impact on household wealth.
Why Bundling Happens
- Commission Maximization
Bundled products bring higher commissions than plain SIPs. - Target Pressure
Bank relationship managers (RMs) face sales quotas not just for SIPs but for insurance, cards, and loans. Bundling helps hit multiple targets at once. - Investor Trust
SIP buyers are often first-time investors who trust the institution. This trust is leveraged to sneak in other products. - Perception of Value
Bundling is sold as a “comprehensive financial solution,” creating an illusion of better service.
The Common Bundles
1. SIP + Insurance (ULIPs or Term Add-Ons)
- Marketed as “investment plus protection.”
- Reality: Investors end up with expensive ULIPs or unnecessary term covers.
- SIPs are diverted into insurance-linked products with high costs and lock-ins.
2. SIP + Credit Card
- Investors are offered a “free” or “lifetime free” credit card when signing SIP mandates.
- Hidden annual charges, joining fees, or cross-selling of loans soon follow.
3. SIP + Demat Account Fees
- Some brokers force investors to open costly Demat or trading accounts, even though SIPs in mutual funds don’t require them.
4. SIP + Advisory Package
- Bundled “premium advisory” services charge fees for rebalancing or reviews.
- In reality, this often leads to portfolio churn scams.
5. SIP + Insurance Rider (Health/Accident)
- Low-value riders are added, eating into SIP contributions without investor clarity.
How Bundling Scams Work
- Disguised Mandates
Investors sign SIP ECS mandates, only to discover extra charges for bundled services later. - Emotional Triggers
Agents play on fear: “What if you die? Your SIP stops; insurance ensures family protection.” - “Free Gift” Illusion
Bundles are presented as free. Costs appear later as deductions, fees, or reduced returns. - Complex Jargon
Contracts are stuffed with financial jargon, making it difficult for investors to identify the add-ons. - One-Click Apps
Fintech platforms nudge users into “bundled packs” under the guise of simplified investing.
Why Investors Fall for Bundles
- Trust in Banks: Customers assume their bank will not mislead them.
- Lack of Awareness: Few understand that SIPs don’t require credit cards, insurance, or Demat accounts.
- Convenience Bias: Bundles are sold as “all-in-one” solutions, saving time.
- Social Proof: Seeing friends or colleagues buy bundled products normalizes the practice.
Case Studies
Case 1: The Insurance-SIP Trap
A 35-year-old professional in Delhi signed up for a SIP at his bank. The RM bundled a ULIP under the same mandate, marketed as “SIP with insurance.” He later realized that a large portion of his contribution went into insurance charges, not mutual funds.
Case 2: The Credit Card-SIP Package
A Pune investor was offered a “free credit card” for starting a ₹5,000 SIP. After a year, hidden annual fees were charged. He eventually cancelled the SIP out of frustration, losing compounding benefits.
Case 3: The Demat Account Squeeze
In Mumbai, a retiree was told to open a Demat account for SIPs, paying annual maintenance charges of ₹1,000. Over ten years, the unnecessary fees eroded returns by several lakhs.
The Hidden Costs of Bundling
- Reduced Returns
Insurance and advisory charges eat into SIP contributions. - Liquidity Lock-Ins
ULIPs or bundled insurance tie investors into long contracts, unlike flexible SIPs. - Tax Inefficiency
ULIPs often offer poor post-tax returns compared to equity SIPs. - Behavioral Damage
Bad experiences with bundles cause investors to exit SIPs altogether. - Opportunity Loss
Money wasted on junk add-ons could have grown significantly if invested in genuine SIPs.
The Industry’s Role
- AMC Silence: AMCs turn a blind eye because SIP inflows matter, no matter how they’re sold.
- Distributor Pressure: RMs are measured by cross-selling, not suitability.
- Regulatory Gaps: SEBI and RBI rules against mis-selling are weakly enforced.
- Fintech Complicity: Apps nudge investors into bundled “plans” with hidden costs.
Global Parallels
- U.S. 401(k) Bundles: Retirement plans bundled with costly insurance riders.
- UK Endowment Policies: Investment products bundled with insurance collapsed in scandal.
- Asia ULIPs: Bundled insurance-investment hybrids devastated households before regulators cracked down.
Bundling is a global financial sales tactic, adapted to local contexts.
Warning Signs for Investors
- SIP sign-ups requiring unrelated products (credit cards, Demat).
- Words like “investment + protection” without clear details.
- Free gifts, cashback, or cards offered alongside SIPs.
- Charges appearing in bank statements not linked to SIP contributions.
- Lack of transparency in where SIP money is allocated.
What Regulators Should Do
- Ban Forced Bundling
Make it illegal to tie SIPs with unrelated products. - Commission Transparency
Distributors must disclose commissions from bundled sales. - Mandatory Suitability Rules
Advisors should justify why a bundle fits the investor’s profile. - Digital Audit Trails
Apps and banks should disclose product breakdowns at sign-up. - Investor Awareness Campaigns
Educate the public that SIPs require no add-ons.
How Investors Can Protect Themselves
- Ask Directly
“Is this SIP linked only to a mutual fund scheme?” - Refuse Add-Ons
Say no to credit cards, insurance, or Demat accounts bundled with SIPs. - Read Mandates Carefully
Double-check forms for hidden riders. - Stick to Direct Plans
AMC websites allow SIPs without middlemen or bundles. - Report Mis-Selling
Escalate cases to SEBI or RBI if bundles are forced.
Could Bundling Damage SIP Credibility?
Yes. If too many investors feel cheated by bundled products, SIPs may face the same fate as ULIPs in the 2000s — a once-trusted tool tainted by mis-selling scandals. Trust is fragile, and bundling erodes it.
Conclusion
SIPs are powerful wealth-building tools when left simple. But bundling them with useless financial products transforms them into traps. What investors see as comprehensive solutions are often commission-driven bundles that dilute returns, reduce flexibility, and sow distrust.
The core lesson: a SIP needs no add-ons. Insurance, credit cards, or Demat accounts are separate choices — they should never be force-fed into disciplined investing.
Investors must stay vigilant, regulators must act, and AMCs must stop hiding behind inflows. Until then, SIP bundling will remain one of the most underhanded scams draining investor wealth.
