Think before Ulip, for it may not suit you

MUMBAI: Raju Subramanian likes to get details, at least as far as picking up the right investment options are concerned. But trying to figure out which unit-linked insurance plan (Ulip) he should invest in had left him more confused.

It all started when an insurance advisor (yes, they are no longer called agents) had consistently called him, trying to sell a Ulip. Initially, he had politely told the advisor he was not interested. But finally he gave in. While talking to the advisor, he realised that in a Ulip there were various investment options to choose from. If an investor is looking for risk-free returns, he could choose the investment option which invests 100% of the premium in government securities.

On the other hand, if the investor is comfortable with risk, he has the option to choose an investment option which invests 100% of the investment portion of the premium in equity. Then, there are various options which split the investment between equity and debt. This feature of the Ulip makes it more of an investment than an insurance product.

Given this, he needed to know the performance of the Ulip the advisor was trying to sell him, with respect to other Ulips in the market. The advisor had tried to convince him that his Ulip was the best option available in the market. But Raju believed that “only the paranoid survives”. So, he needed to find out on his own.

The performance of any investment product should always be compared to similar products in the market. Also in the case of Ulips, since the money is being handed over to investment experts, each Ulip needs to have a benchmark index. This is to ensure that an investor can figure out whether the Ulip is giving returns because of the investment abilities of its fund managers or good market conditions. A Ulip can be deemed to have done well if it beats the returns of this benchmark index and vice-versa.

The first thing Raju had realised was that there was no source that would directly give him a comparison between Ulips offered by various insurance companies. In case of mutual funds, he knew this was possible by logging on to either www.valueresearchonline.com or www.mutualfundsindia.com. Also, all the detailed data was available on the website of Association of Mutual Funds of India (AMFI) www.amfiindia.com.

The only way out for him was to log on to the websites of all the insurance companies one by one and look for information. All the websites he visited gave him the latest net asset values (NAVs) of the various Ulips on offer. They also gave the historical NAVs of the Ulips on offer. On that basis, it wasn’t difficult to calculate the return the Ulip had given over various periods of time.

But the return of a single Ulip was no good, unless it could be compared with returns generated by other Ulips. Hence, he had to log onto various websites one by one, download the NAV data and then calculate the returns. But what was missing in almost all cases was the benchmark index of the Ulip. So, there was no way he could figure out whether the Ulip was beating its benchmark returns or not. If it was not, then it did not make absolutely any sense to invest in that Ulip.

Further, Raju was also interested in knowing what kind of portfolio the Ulip invested in. Let’s say he decided to invest in a Ulip fund which invested 100% in equity. Then he needed to know as what kind of stocks did the money go into. If too much of it was going into mid-cap and small-cap stocks, then he would have liked to stay away from such a Ulip, primarily because prices of mid-cap and small-cap stocks tend to be more volatile.

Most of the Ulips did not declare their portfolios on the website. Bajaj Allianz, which recently claimed to have become the largest private life insurance company, had not bothered to put up the portfolios on their website. Same was the case with Birla Sun Life Insurance. Those insurers, like ICICI Prudential and HDFC Standard Life, which had bothered to declare their portfolios, they were a few months old. 

Having gone through this ordeal, Raju had decided not to invest in Ulips. He needed to know what he was putting his money into. Most of the investors do not bother about checking these details while investing in Ulips. The only focus was on the fact that the investment would allow for a deduction under Section 80 C.

Insurance advisors and companies, essentially, make use of this attitude and sell Ulips to them. The whole idea of insurance companies, till now, seems to have been asset gathering. It’s high time they move onto sharing information with would-be investors as well. This is an important part of proper investment management.

The example is hypothetical