 "Debt focussed Ulips see an uptick over their equity counterparts")
The Ulip segment, which has dropped to almost 30-40% of total product portfolio of life insurers, are seeing a rise in sales, on the debt-focussed segment by atleast 10-20% since the last six months.
Ramesh Kumar, senior vice president (debt markets), Asit C Mehta Investment Intermediates said, "Yes, debt-focussed Ulips are seeing an uptick. This is because people are feeling that interest rates will be at a lower level. If that is the case, those who manage these will extend the duration and this way lock-in higher returns. The trend of Ulips being attractive will continue at least for the next 3 months."
Also Read
Unlike popular perception, unit-linked plans are not purely equity oriented. In the Ulip portfolio, insurers also have a category of debt-focussed plans which constitutes roughly 35-40% of their total unit-linked product segment. Here, the money is invested in a debt fund, as per the customer's choice.
While the returns may not be high and there are fewer chances of seeing high double digit growth, the fund value does not undergo too many fluctuations in a short period. This may not be true for equity funds, where the volatility in the stock market is reflected in frequent fluctuations in the fund value.
Sanjay Tiwari, vice-president (strategy and product), HDFC Life said that interest rates are on the downward trend and bond yields are rising. Hence, there is a scope for good returns.
"We have a portfolio which offers equity-focussed fund, debt-focussed fund and balanced fund," he added.
The Ulip segment has taken a beating in the market, owing to the volatility of the Indian stock market and the Insurance Regulatory and Development Authority (Irda) crackdown on these products. Ulips, which used to constitute 75-80% of the product portfolio of insurers, has now come down to 20-25%.
In September 2010, the Insurance Regulatory and Development Authority (Irda) capped the charges and commissions on unit-linked products (Ulips), as a result of which, the average commission in Ulips as a percentage to premiums collected fell to 4% in 2011-12, from nearly 10% in 2009-10. Whereas, the average commission in traditional plans as a percentage to premium, which was around 8.5% in 2009-10 for the private sector, increased to around 12.5% in 2011-12.
Life insurers, expect these products to see consumer demand for atleast the next 10-12 months. With a 25 basis points cut in the repo rate by the Reserve Bank of India (RBI) last Friday and the expectation of one more rate cut of 25 basis points this fiscal, life insurers said that the attractiveness of debt-focussed Ulips will only increase.
AK Sridhar, chief investment officer of IndiaFirst Life Insurance said that debt-focussed Ulips have seen consumer interest as they are more stable.
"For the next one year atleast, money would be made from the debt market. There is lesser uncertainty in these products," he said.