With erosion in the value of their investments, holders of unit-linked insurance plans (Ulips) are looking at switching from equity-dominant plans to debt-oriented or balanced schemes within the segment.
Though investment advisors and insurance agents are advising their clients against such a move since stock market indices have already plummeted and the value erosion has already taken place, insurance companies say that the number of request for switches is on the rise.
At least 10 per cent of the Ulip-holders have opted for guaranteed return schemes, while there were hardly any switches till three months ago.
| SWITCHING SIDE | ||
| Insurer | Free switches | Charge/ switch (Rs) |
| LIC | 4 | 100 |
| Max New York Life | 6 | 500 |
| SBI Life | 4-Mar | 50-100 |
| ICICI Prudential | 4 | 100 |
| Aegon Religare | 4 | NA |
“Around 5-10 per cent people are switching from aggressive funds, which invest 90 per cent in equity and 10 per cent in debt, to balanced or debt funds,” said ICICI Prudential’s Senior Vice President & Head of Product and Sales Training Pranav Mishra.
While balanced funds invest fifty-fifty in debt and equity, debt funds invest 70 per cent in debt.
“We have experienced a change in the trend with around 10 per cent investors switching. But so far, there has not been a major shift. Sales have been affected as people are postponing purchases,” said Max New York Life Chief Marketing Officer Debashish Sarkar.
While most companies provide up to four free switches a year, investors have to shell out up to Rs 500 for every additional switch they make (see table)
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“Asset allocation has seen a change with 80 per cent share moving to equity against 90 per cent till two months ago,” said SBI Life Chief Financial Officer Anuj Agarwal.
Factoring in the recent trend of investment switch, companies such as ICICI Prudential are launching a new fund option called assured fund return. This new fund option is over the existing ones, where investors can invest in four products — life stage pension, life stage RP, life time gold and lifetime super pension — with an assured return of Rs 15.03 a unit, which has an NAV of Rs 10 at present. The returns will accrue if you stay invested for five years.
“People are getting conservative towards equity and increasing asset allocation. They should have a balanced portfolio with at least 20 per cent investment in debt. Ideally, investment in equity should be 100 minus the age since the risk appetite is linked to a person’s age,” said Angel Broking Director (Wealth Management Group) Hitungshu Debnath.