M.V.S Santosh Kumar
Fresh investment can be considered in the units of UTI Unit Linked Plan 71, a unit-linked insurance plan (ULIP) with a track record of 40 years. UTI ULIP is the only unit linked insurance regulated by the Securities Exchange Board of India and has a more attractive expense and load structure than most products floated by insurers.
The fund has a mandate to invest up to 40 per cent in equity and the rest in debt. The fund has not only outperformed its benchmark CRISIL Hybrid Debt (60:40) index consistently but has positioned itself among the top-performing funds in the debt-oriented balanced mutual fund category over a one-, three- and five-year time-frames. While the benchmark generated an annualised return of 5.4 per cent for a three-year period, UTI ULIP returned around 8.1 per cent annually. The fund offers a life insurance cover of up to Rs 15 lakh.
Additionally, the fund may give a 5-7.5 per cent of the target amount (invested amount over the plan period) as additional bonus on maturity apart from the NAV returns. Tax deduction under Section 80C would further boost the yield of the fund.
Suitability: UTI ULIP is strictly for investors who have a very long-term investment horizon as the fund's portfolio management strategies also are focussed towards delivering returns in the long term. Besides, the fund's 10- and 15-year plans will suffer a load of 2 per cent if exits are made prematurely.
The fund is not for very risk-averse investors as its exposure to equity results in sharp dips during market corrections. During the 2008 market meltdown, the fund lost around 19 per cent of its value on a one-year rolling return basis; this decline is rather high for a debt-oriented fund.
Performance: Over a five-year period the fund delivered a double-digit annualised return (11.3 per cent) far greater than the balanced debt fund category average of 8.1 per cent. It delivered similar returns over a 10-year period. However, a high interest-rate regime (which existed for much of the last decade) may not repeat in the future.
Over the last three years UTI ULIP outperformed its benchmark 85 per cent of the time on a one-year rolling return basis.
While the fund gradually reduced its portfolio during the 2008 meltdown, it quickly got back to equity investment from April-May 2009.
This allowed it to make up for the lost returns during the previous years.
Portfolio and Strategy: As of December 2010, the debt and equity as a proportion of the total portfolio stood at 59 per cent and 38.6 per cent respectively. The equity portfolio is predominantly large-cap focused (Rs 7500 crore market cap) with around 28.5 per cent of the total portfolio invested in these stocks.
Given that the fund is relatively secure from unanticipated redemption pressures, it has a flexibility of buying and holding stocks as well as debt and exit at an opportune moment.
The average maturity is 1.8 years for the fund. Around 19 per cent of the portfolio (Rs 474 crore) is invested in money market instruments to take advantage of sharp spike in short-term instruments.