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Sowmya Sundar

IF you thought investing in market-linked insurance plans (MLP) would have given you a bonanza this year, then yes, they have; when compared to a non-market linked insurance products. They have also managed to beat the underlying benchmarks.

But the effective returns to an investor from a market-linked plan may pale in comparison to what he would get from a competing mutual fund offering.

The returns generated by the top performer in the insurance growth fund category - ICICI Prudential Life — is only half that generated by the top equity fund - Franklin India Prima. You have to make allowances for the slightly lower equity exposure in market-linked plans. ICICI Prudential Life, the most aggressive fund manager, had just 84.7 per cent of its portfolio in equities as of September 2003.

But for those willing to be fully invested in equities, there were at least 15 equity funds that outperformed the market-linked plans. Market linked plans have however, outperformed the indices - Sensex and Nifty.

There has been wide variance between the performances of different MLPs because of the differences in their individual asset allocation patterns. Most MLP's follow a conservative asset allocation pattern though not stipulated by IRDA. Individual companies have a free hand in asset allocation.

While companies such as Birla Sun Life follow an extremely conservative asset allocation pattern even in their growth fund (a maximum of 35 per cent in equities), others such as ICICI are aggressive, and may park up to 90 per cent in equities. Market linked insurance plans are not required to adhere to the asset allocation pattern stipulated by IRDA. This apart, individual MLPs have also chosen to peg their equity exposure at much lower levels for their growth funds than permitted by their asset allocation pattern.

For instance, Aviva has just 44 per cent in equities and Kotak had invested only 62 per cent in equities as of September 2003. Therefore, these products may be more comparable to balanced mutual funds. Seen in this context, their performance has been satisfactory as the returns generated by these funds have been almost twice that of the Crisil Balanced Fund Index, the benchmark followed by mutual funds. However, they still underperform quite a few balanced products of mutual funds.

In the debt funds category, Birla Sun Life was the top performer among MLPs surpassing the others by a huge margin. It has also outperformed the benchmark Crisil Composite Bond Index by a substantial margin.

But unlike mutual funds, the appreciation in the NAV of a MLP does not directly translate into returns on the money you have invested. When you invest in a MLP, a number of charges are deducted either before investing, or by way of reduction in the number of units, which may dent the actual returns on your investment.

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