The Hindu Business Line : Thin dividing line between insurance and MF products

INSURANCE schemes or mutual funds? The dividing line between mutual funds and unitised insurance products is quickly getting blurred, with the sales pitch of a section of insurance advisors and distributors underlining the fact that these schemes serve investors in the same way as MFs.

A number of unitised policies are currently being sold on the premise that these too come bundled with the features offered by funds - a trend that is expected to become stronger as more and more insurers come out with such schemes.

Prospective clients are being informed about the ease with which they can enter, the way they can calculate valuation on a given day and the various investment options that are being made available. These, as investment circles suggest, have so long remained in the realm of funds.

The similarity persists even after the sales pitch becomes successful. Statements sent by some of the insurance companies carry more than a passing resemblance to those mailed to MF investors. There are, for example, references to details such as fund value, number of units and unit price. The policy documents sent to the insured parties too provide definitions and particulars such as policy value, purchase price and sales price.

In fact, as a sales executive of a leading life insurance company indicates, product designers are leveraging the term "unit" in several ways. Allianz Bajaj, for instance, has included in its `Unit Gain' series, separate equity, debt, balanced and cash options. Others such as OM Kotak Mahindra simply call these Balanced, Bond, Gilt, Growth and Money Market.

"If you are familiar with MFs, you would be comfortable with this (insurance) scheme as well," was how another advisor put it while describing a newly conceived product. His company, a joint venture between a large Indian group and an US insurer, is of the view that policies such as these will find takers in a market that is already accustomed to with not-too-dissimilar choices.

What sets the two apart is the one feature that mutual funds can never provide - the cover that secures an insured person. Investment sources, therefore, concede that seasoned investors will not use the unitised schemes for purposes of punting. "Insurance is a long-term affair and there should be no room for speculators here," said a Kolkata-based distributor.

As for another similarity, clients are in many cases free to work out their own asset allocation by investing in a combination of schemes. One of Tata AIG's products - InvestAssure - allows some flexibility in this regard. A portion of the premium paid by a customer is subtracted for covering life cover charges and miscellaneous fees. The rest is spread over one or more alternatives in line with the allocation. A client has the option of selecting between three pure funds (equity, income and liquid) based on his or her preference.

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