The Hindu Business Line : ‘Our experience suggests that very few people use switch fund options’

Chennai, May 18 Investors should look at their objectives, risk profile and time horizon before taking a call on any investment option, feels Mr Puneet Nanda, Executive Vice-President and Chief Investment Officer, ICICI Prudential Life Insurance. In a chat with Business Line he discusses the industry’s growth and how investors should view ULIPs.

Excerpts:

Life insurance companies do close to 30-40 per cent of the business in the last quarter of the year. With the market in a highly volatile phase, what was the growth rate achieved by the industry as a whole and ICICI Prudential in particular?

According to recent data released by IRDA, annual growth of the life insurance industry as on March 31, 2008, is 23 per cent. Further, with a total new business of Rs 92,989 crore, life insurance has turned into a $23 billion industry.

At ICICI Prudential Life, the total premium income received for FY2007-08 stood at Rs 13,561 crore as against last year’s Rs 7,913 crore, registering a growth of 71 per cent. Renewal premium saw a 101 per cent increase to Rs 5,526 crore as against Rs 2,751 crore in FY2007-08. The strong renewal inflows indicate customers trust in the brand and this has enabled the company to expand its asset base to Rs 28,578 crore.

Some investors see ULIPs as a short-term investment product. If one pays premium for a short-period, say 3 years, and stops, will it not affect the yield?

ULIPs are long-term products by design and encourage disciplined savings towards specific financial goals like retirement, child’s education or marriage or wealth creation. The life insurance regulatory body, IRDA, has laid out very strict ULIP guidelines, which ensure transparency and help customers understand the long-term nature of the product. Therefore, ULIPs attract customers, who wish to adopt a more goal-oriented approach towards buying life insurance, such that it helps them meet their considered financial goals.

Single premium policies, which formed a sizeable portion of new premiums 2 years ago, have now dropped substantially. Is the change in the Act was a dampener or due to low brokerage?

At ICICI Prudential Life, we have always encouraged regular premium policies and single premium policies never formed a sizeable chunk of our premium income.

Going forward, what are the sectors that hold potential to reward investors and what should be the realistic return an investor can anticipate?

Even after the slowdown, India remains one of the best economies in the world. While there could be considerable volatility in the short term, in the long term, if the corporate earnings growth rate stabilises at 15-20 per cent, the market will also move accordingly. In current market conditions, one could focus on domestic consumption themes and select plays on the Indian economy. As such, one could look at consumer goods, telecom and banking sectors.

When should policy holders utilise switch option?

Fundamentally, switching option is given to enable customers to change the asset allocation profile of their savings with changes in their risk appetite or horizon. The idea of a switch is to give the flexibility needed in any long-term investment. Studies suggest that the asset allocation, rather than market timing, determine fund performance over longer term. Thus, customers should utilise switches to rebalance asset allocation due to changes in risk-appetite and investment horizon.

Our experience in current situation, as well as in the earlier downturns, suggests that very few people actually use switch fund options. At the inception of a policy, we encourage people to choose an asset allocation that is aligned with their risk profile and investment horizon. The whole emphasis is to look at investing for long-term rather than trying to time the market over short periods of time.

Such a disciplined approach minimises the need to switch across fund options and also ensures better performance over longer term.

More Stories on : Interview | Life Insurance | Mutual Funds

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

Stories in this Section
Is it time to be cautious?

Infosys Technologies jumps 7% on falling rupee

‘Our experience suggests that very few people use switch fund options’

Market may move up further