The Hindu Business Line : ULIPs popularity on the rise

But some quarters insist that insurance needs to be a long-term affair and a premeditated link between investment and indemnity may have an adverse impact on the latter.

HAVE you noticed how fast unit-linked insurance plans are proliferating in this country? As an investor in mutual funds, does such proliferation bother you because you think the unitised products are rendering MFs uncompetitive? Or, do you casually wear your egalitarian hat and pay no special attention to the trend?

Whatever may be your stance on the issue, the truth is that the new-generation insurance schemes are getting popular, backed as they are by aggressive marketing strategies.

Check the NAV tables in any business daily and you will come across schemes managed by the likes of ICICI Prudential and Bajaj Allianz. Some of them have names that are also commonly found in the MF industry. The use of words such as defensive, balanced and growth (or their variants) speak much about the broad investment tactics followed by the schemes concerned. The similarity does not end here.

Unitised plans offer facilities such as NAV-based exits after an initial lock-in period and even a limited number of free switches.

While the concept of unit-linked insurance is yet to make a heavy impact in the market, the fact that it is gaining significance cannot be ignored. Insurance companies - ranging from the largest player Life Insurance Corporation to smaller entities such as Aviva - seem to be particularly interested in advancing its case. Just as an aside, let me tell you that some of Aviva's products bear such striking names as Life Bond Unitised Profit, Life Saver Unit Link and Young Achiever Unit Link.

The point is that a number of products have been launched in recent times and insurers are carrying out smart advertising campaigns. The plans are currently being pushed by hordes of persuasive insurance advisors all over the country.

A typical sales pitch dwells on such `advantages' as the possibility of exiting easily in line with an upside in the market.

But some quarters insist that insurance needs to be a long-term affair and a premeditated link between investment and indemnity may have an adverse impact on the latter. In other words, you should go to an MF if you need a typical NAV-based investment product. Alternatively, go to an insurer if you need to handle life risks, ideally by starting early and staying committed for a long stretch. It would be interesting to note how the insurers respond to this school of thought.

But to provide a specific example, let's turn to Kotak Mahindra's insurance venture with its overseas partner, Old Mutual. It has worked out a few straight products - growth, aggressive growth, balanced, bond, gilt and money market. These names instantly recognised in MF circles. There are a number of other instances.

Whether or not such products are actually undermining the case for MFs (on a sustained, long-term basis) needs to be studied in greater detail. It is not known whether IRDA, the insurance regulator in India, has taken any specific stance on the subject.

AMFI, the non-statutory body representing fund houses, is keenly aware of the matter and has started looking at it far more seriously than before. However, some sections of the asset management industry are particularly concerned by it and have already expressed their concern in more ways than one.

Feedback may be sent to nilanjan@thehindu.co.in

More Stories on : Mutual Funds | Mutual Confidence

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
ULIPs popularity on the rise

Tell the losers not to be dyed-in-the-wool!

Indian counters shine

`Enormous amounts are still locked in bank deposits'

Undertone bullish on Dalal Street

IOB scheme for PSU issues