The Hindu Business Line : Money Talk

Sam Ghosh, CEO of Bajaj Allianz Life Insurance Company, talks of his personal investment decisions and has useful advice to offer on how young investors should choose their insurance plan.

Which was your first investment, at what age, and did you make money on it? Any learning from that experience?

Having started in my early twenties, I invested in equities and made good returns. One should set targets for both upside and downside and exit as when one breaches those limits. Investment should purely be a rational call. If you are a novice, investments must be restricted to well-known companies with good management.

What is the extent of returns you expect from your investments?

I expect a 15-20 per cent return in the long run.

Some experts believe that young investors can afford a 70-80 per cent exposure to equity. Do you share that view?

Each individual has his own objectives and risk appetite. Abnormal gains would most likely have higher risks associated with it. The issue in not about how much upside equities can give, but what the individual capacity is to absorb the downside. In equities, there is always the possibility of values being dented and investors may need to book losses as well. A higher exposure to equities requires a disciplined approach to investment wherein one sets goals, selectively invests in good companies and managements, and regularly books profits. You also need to re-examine portfolio rationally to weed out non-performing investments.

There is such a large variety of insurance products today. What are the key factors that young investors should look into while choosing between products and insurers?

While buying insurance, one needs to analyse one's own needs and look at which products would suit the individual the most. There are a host of insurance products which can be classified into four broad categories, based on risk bearing capacity and basic cover required:

Unit Linked products are meant for customers who have a higher ability to bear risk on their investments, apart from making use of ULIP as a product to cover risk.

Endowment and money-back plans are focussed on creating a savings pool with added risk cover.

Term plans are simple low-cost options without a savings element. They are excellent for self-protection and safeguarding your family's interests.

Pension plans are annuity plans aiming at creating retirement benefits, which will take care of old age needs. Apart from these broad categories, we also recommend health insurance products to safeguard against expenses due to medical treatment.

ULIPs are often to their disadvantage compared to mutual fund products because of their lower disclosures and higher expense structure. Do you agree with this view? Why?

The key objective of insurance is to bridge the financial vacuum in case a key earning member of the family passes away. ULIPs not only provide the safety cover for the family against unfortunate events but also good returns on the investment. ULIPs have gone through several changes in structure over the past few years. The new generation ULIPs not only have lower entry charges but expense ratios that compete very well with MFs, in the long run.

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