Funds irked by risk players' ULIP gambit

Mutual funds (MFs) are at logger heads with the life insurance players over the latter's unit-linked insurance plans (ULIP), which, they feel is an encroachment into their territory.

In 2004, nearly 80 per cent of the premium income of life insurers came through unit-linked plans, which have been performing well owing to the boom in the equity markets.

In fact, growth in new business premium among private life insurers and, even the state-owned Life Insurance Corporation, has been driven unit-linked plans. ULIPs also offer flexibility to investors to choose their kind of investment plan.

The main grouse of mutual funds against the insurance product is that the distributors are mis-selling the product, without informing investors about the expense ratio and brokerages.

In insurance, unlike mutual funds, the initial expenses are high at around 20 to 25 per cent, while for MFs, the expenses are capped at 6 per cent.

Brokerages are also high for insurance products at around 7 to 8 per cent against the 2.5 per cent paid by mutual funds.

Further, the unit-linked plans have a three-year lock-in, which is often not revealed to the investor at the initial instance, according to the marketing and sales head of a leading fund house.

Incidentally, fund houses have already taken up the issue with the Securities and Exchange Board of India (Sebi), which has refused to take it up with Insurance Regulatory Development Authority, saying that it did not want to interfere in the turf of another regulator.

In fact, funds had gone to extent of saying hat ULIPs should be brought under the purview of Sebi as it was very similar to the schemes floated by mutual funds.

Krishnamurthy Vijayan, chief executive officer of J M mutual Fund said, "We cannot really force the issue on Sebi. We just have to fight it out in the market place."

However, ULIPs have the lure of being guaranteed products with the added attraction of fulfilling life insurance needs.