The Hindu Business Line : ULIPs vs MFs: AMFI calls for even field

THE growing popularity of unit-linked insurance plans has prompted the Association of Mutual Funds in India to call for a level-playing field when it comes to a comparison between these products and MFs.

The AMFI's contention is simple: A unitised plan offered by an insurance company is not a mutual fund though each has a net asset value associated with it.

AMFI, which has already set up a working group to review unitised plans vis-à-vis funds, has based its argument on two major issues. One, insurance companies pay fat commissions to distributors at rates that are no match compared to the ones offered by fund houses. Two, the plans' allocations to the capital market, despite the overall stipulations set by IRDA, are not regulated in the same manner as are allocations made by the funds.

However, what is particularly galling to the entire MF industry is the fact that a few insurance companies are positioning their unitised plans as products that offer both investment and indemnity. This, said Mr A.P. Kurian, Chairman of AMFI, seems somewhat unfair to funds, which are being seen as uncompetitive by a section of the market.

"Such positioning, as the marketing strategies that follow as a consequence, does not create a level-playing field for asset management companies that have become our members," he said. "Insurers are known to be handing out hefty commissions. Whatever we pay pales in comparison. However, these get factored into NAVs and influence returns," he added.

The working group, led by Mr S.V. Prasad, the head of Birla Sun Life MF, includes representatives from several fund houses. These are Standard Chartered (Mr Naval Bir Kumar), ING Vysya (Ms Kavita Hurry), UTI (Mr Ashutosh Bishnoi), Principal (Mr Subhashish Sharma) and Prudential ICICI (Mr Sumeet Vaid).

ULIP to be seen as model: The Unit Linked Insurance Plan (ULIP) managed by UTI MF may be seen as an ideal way of catering to investors, the AMFI chief has said. Investment in it by an individual investor is eligible for exemption under Section 88 of the Income-Tax Act. Additionally, it provides life and accident insurance cover.

"UTI MF sells it (ULIP) as a mutual fund, with limited insurance benefits. For our purposes, this is a good combination. Its investments are in line with regulations and commissions paid to the distributor community are competitive," he maintained.

Incidentally, AMFI has over 23,000 registered distributors, most of whom are individuals.

It may be mentioned here that ULIP, launched in 1971, is currently a giant scheme in itself, managing about Rs 4,000 crore and follows a balanced strategy. It, however, has to restrict its equity exposure to 40 per cent. The scheme, with over eight lakh unit holding accounts, recently turned NAV-based.