The Hindu Business Line : ‘MF schemes & ULIPs are complementary, not competing products’

Among private insurance companies, ICICI Prudential Life Insurance has the largest fund under management in terms of equity exposure in markets, and its equity assets measure next only to UTI and Reliance Mutual Funds. Mr Puneet Nanda, its Executive Vice-President and Chief Investment Officer, manages assets worth Rs 28,000 crore for the company as on December 31, 2007 for the 6 million customers, out of which Rs 20,000 crore is in equity. He spoke to Business Line about the current trend in investments, the company’s performance, opportunities in volatile stock markets, and the much talked about ULIPs-versus-Mutual Funds investment options from the investor’s perspective.

Did you buy when the markets dipped in January?

Generally we keep only 3 to 5 per cent cash at any point of time and then we have accruals from day to day collections which are then invested at an opportune time. On January 22 our cash was zero, every penny was invested.

Which are the stocks and sector currently looking attractive?

We don’t take a very aggressive stock or sector call; in general we maintain a very well diversified portfolio. It has to do with the long term nature of funds. Over the long term, on a risk adjusted basis, we believe that a diversified portfolio is the best approach to have. But then fund managers take calls on which sector to be overweight on and which sector to be underweight on at various point of time. For example, at this point of time, our two biggest views are that the domestic consumption theme and the play up on interest rate are the best themes. We think interest rates are already on a downtrend, the government bond rate has already fallen from 8 per cent to 7.5 per cent in the last six months. In domestic consumption themes like engineering, capital goods, and infrastructure, we are most overweight. Where we are most underweight on are themes which are dependent on either the global economy and to a large extent, export, whether it is IT or pharma.

What has been investors’ response to the recent market volatility?

There is a refreshing change from the point of view of the Indian capital market. Whenever there is severe volatility people actually put more in equity; at these points of time they have the opportunity to get at lower NAVs. Our experience the last four times when the market saw huge volatility is that majority of switches was into equity. Normally you see retail investors moving out of equity in times of volatility. We analysed data from January 14 to 23, and 100 per cent of the switches were into equity. Investment choice is changing. More people are getting comfortable with greater equity exposure, and are now opting for up to 70 per cent equity exposure when 3-4 years ago it was only 30 per cent.

Is it possible to make money from ULIP products in 3 to 5-year period?

If any investor is looking for short-term investment, ULIP is not the right product as it can give good returns only after a 6-8 year period. Regulatory mandate also prescribes that the product has to be of minimum five years.

Mutual Funds & ULIPs are not competing but complementary products. Mutual funds are better for investors with a short-term horizon whereas ULIPs are far better products for long-term investments.

Growing investment in ULIPs has also to do with the psyche of the average Indian investor, which goes out of way to save money for a child’s career or retirement planning by cutting down household expenditure. Internationally, ULIPs became popular much before the mutual funds. India is only case where mutual funds has preceded ULIP. ULIPs were introduced in India in 2001.

ULIPs brought transparency and flexibility into the life insurance products unlike the traditional products. On a quarterly basis, the investor can see his portfolio. Moreover, in ULIPs one can increase life cover which is not the case in traditional plans.

ICICI Pru, which has close to 50 ULIP products, has designed products where there is automatic asset allocation depending on the life stage. There is automatic shift from greater exposure to equity in youth, to greater exposure to fixed income products as one approaches retirement age.

ULIPs are providing tough competition to mutual fund products. Since insurance companies have existed far longer and have well spread-out infrastructure, they are gathering much more money from the investors.

Insurance companies have 5,000 offices as compared to around 1,000 offices of the mutual fund houses.

ICICI Prudential has raised its capital base to Rs 3,500 crore since the formation of the company in November 2000.

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