The Hindu Business Line : Insurance and investment

How should one evaluate ULIPs (unit-linked insurance plans)? In an e-mail interview with Business Line, Mr Vikram Kotak, CIO, Birla Sun Life Insurance (BSLI), makes a case for investing in ULIPs.

He also sheds light on the performance and portfolio strategy of Birla Sun Life’s ULIP products. Excerpts from the interview:

Why should one seek returns and insurance from a single product?

An important factor guiding any investment decision is the objective of such investment. If the investment objective is to deploy funds with a long-term perspective, ULIPs are a good investment avenue.

It will not only fulfill your objective by providing you a lump-sum at maturity, but will also take care of the needs of your family in the unfortunate event of your death.

Having said that, a ULIP is not the perfect product for you, if your investment objective is to profit from the short-term market volatility.

From an individual policyholder’s point of view, another reason for looking at insurance and investment from a single product — is the ease of operation. Otherwise, you will have to create a basket of several products to fulfill your objectives.

By having a single point of contact, you can keep track of your investments and seek professional advice as and when required.

In a nutshell, if your investment objective is long term, then ULIP provides a one-stop solution and saves time and effort in managing investments.

How does Birla ULIP compare with other diversified equity funds?

Insurance and mutual funds are two different investment vehicles meeting different goals. Given this inherent difference, it will not be apt to compare their returns.

BSLI funds should be compared with other ULIP funds in the life insurance space to judge their performance. Our Individual Magnifier Fund (50-90 per cent equity allocation category) has delivered a 38.4 per cent returns for the 12-months ended February 2008.

Our pure debt funds have delivered impressive double-digit returns compared with 8.3 per cent growth in the Crisil Composite Bond Index during the same period.

Almost, all the funds have outperformed their respective benchmarks as well.

Do you offer anything different from your competitors?

Among the current plans that BSLI offers, we have a range of plans offering guarantees. Plans with guarantees, in fact, ensure that a customer receives a basic floor guarantee on his/her investment with all the benefits of the market upside.

We are amongst the select few private insurance players to offer ULIPs with guarantees.

The choice of funds for ULIPs with guarantees are essentially funds that have a higher component of debt.

How often do you churn your portfolio and what is the mix of your portfolio among large-, mid- and small-cap stocks?

Our investment strategy is based on a risk-return pay-off and does not restrict us from taking calculated risks. Our investments are skewed towards large cap stocks with very selective exposure to mid-caps. We have recently launched Multiplier Fund, which will predominantly invest in mid-cap stocks.

We have strategically launched a separate fund and not increased mid-cap exposure across funds since we wanted to meet the requirements of those policyholders, who have higher risk appetite, without hampering the interest of other policyholders.

It is crucial and even financially lucrative to have adequate safeguards — given the cycles that financial markets go through.

We believe in constructing a high-quality diversified portfolio by investing across sectors. This, according to us, will give that extra edge to the portfolio and also translate into better returns in the long-term, instead of trying to time the market by excessive churning.

We do play on relative valuations and choose companies from within our universe of 250 stocks that look attractive.

But, we are not tempted by short-term opportunities thrown open by stocks in which we would not like to remain invested over long term.

The BSLI has slipped in ranking over the past few years in terms of business volume. Any specific reason?

In fiscal 2007-08, the resurgence in the performance of BSLI has been extremely high. Month after month, growth rate at BSLI has been higher than the growth rate of the market. As of January 2008, BSLI commands a 6.34 per cent market share amongst private players and is growing at 126 per cent.

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