Ulips give MFs a run for their money

In the last few years, unit-linked insurance plans (Ulips) have quietly become one of the largest players in the Indian stock market.

With a total investment estimated at Rs 1.5 lakh crore to Rs 2 lakh crore, they are almost close to the investment made by equity mutual funds.

According to Life Insurance Council, Ulips had invested Rs 1.5 lakh crore in the equities market till March 31, 2007, of which Life Insurance Corporation of India (LIC) was the major player with Rs 1.24 lakh crore. Said Puneet Nanda, chief investment officer, ICICI Prudential Life,

"Though the markets have corrected themselves, more inflow into Ulips has meant a lot of investment by fund managers. The total equity investments should be closer to Rs 2 lakh crore now."

The figure brings them almost at par with mutual funds. If one takes the March-end figures of mutual funds, it is clear that Ulips are almost there. Consider this: the total asset under management (AUM) in growth funds is Rs 1.57 lakh crore, in equity-linked savings schemes (ELSS) it is Rs 16,020 crore and in balance funds it is Rs 16,020 crore.

Given that the latter invests around 25-30 per cent in debt instruments, the total equity investment of mutual funds would be slightly under Rs 2 lakh crore.

Mutual funds have raised their AUM after being in the market for 15 years. Ulips, on the other hand, have collected most of their corpus in the past two to three years.

Nanda feels that the reason for this quick expansion is because of a larger network across the country. Today, insurance firms have between 2,000 and 2,500 branches all across the country.

With such a large corpus of funds, what are Ulip fund managers doing in the current market? Said Sunil Kakar, director, finance and chief financial officer, Max New York Life Insurance, "Volatility in the short term does not significantly impact our investment strategy as long as the fundamentals of the sector and specific company are strong."

Agreed Jyoti Vaswani, associate director, fund management, Aviva India, "Since we do not face any redemption pressure, we continue to buy whenever valuations become attractive." Max New York Life has 75-80 per cent of its AUM in equities, while ICICI Prudential has around 69 per cent (Rs 19,769 crore).

As far as the quality of stocks goes, Nanda said that since the investment strategy was far more conservative, the bias was towards large-caps. Returns are benchmarked against indices. Kakar said the mandate for Ulips was to keep the money safe.

Therefore, they did not take aggressive cash calls. "Returns have to be consistent in the long run," he added. While mutual funds face redemption pressure when markets tank, Ulip fund managers do not have to worry too much as the money is locked in for three years.

However, even if insurance companies do not face redemption pressures, they offer a unique facility of "switching between funds". That is, one can move one's money from an equity-focused fund to a debt-focused one. Most Ulips offer this facility free of cost four times a year.

However, Ulip fund manages say that there is a little shift from existing customers, but it is not too much. "Most new customers are opting for the equity option," added Nanda.

Market sources, however, say even Ulips have been going slow in the market. "In the last three months, only ICICI Prudential, LIC and Birla Sun Life have been active. Normally, during the fourth quarter, Ulips double their investments compared with earlier quarters. But in the last three months, we have not seen any such surge," said the head of a broking house.

But he expects inflows to happen this quarter because there is a continuous inflow of premiums. And that could mean some solace for stock markets.