Ulips lag Sensex performance in last two months

In the last two months, unit-linked insurance plans (Ulips) have underperformed the Sensex.

A study of 130 equity funds indicates that the net asset value (NAV) of almost 70 per cent of them has dropped below the index since December 2008. It’s a fact that market dynamics have a direct bearing on the performance of Ulips, which essentially provide a combination of risk cover and investment.

The study revealed that NAVs of 90 schemes have declined below the Sensex, which has gone up by 9 per cent since December 2008.

For instance, equity schemes of Tata AIG have grown below 2 per cent, while the NAV of Kotak Opportunities fund has dipped by 4 per cent in the last two months.

However, SBI Life Insurance Equity Elite Fund has been an exception by posting a 17.26 per cent increase in its asset value during the period.

“Beating the benchmark is not easy. At the most 30-40 funds are able to beat the benchmark. However, the comparison between the performances of equity funds of life insurance companies and the Sensex can be justified on a longer horizon,” said Max New York Life Insurance CFO Sunil Kakar.

With a downturn in the equity market, people are shifting their focus from aggressive funds, which invest 100 per cent in equity, to debt or balanced funds.

Also, insurance companies invest only 40-50 per cent in stocks as they levy high administrative charges of 50-60 per cent for the first year. Mortality and asset management charges are also deducted from the premium depending upon the policyholder’s age.

Out of the 150 balanced funds that combine equity investment with fixed interest instruments, 123 have underperformed the benchmark indices. The net asset values of only 27 funds have risen by more than 9 per cent during the last two months.

Similarly, out of 257 debt funds, 12 have grown above 9 per cent. Debt funds invest in government securities and the bond market comprising financial and corporate bonds, and debentures.

The Sensex is, however, not the benchmark for debt funds. Returns on these instruments have fallen in the last two months.

Ulip sales have dropped in the last two months due to a sharp fall in the stock market. The latest data by the Insurance Regulatory Development Authority (Irda) show that premium collections of life insurers have dipped by 2 per cent.

Still, 80-90 per cent of the products that private insurers sell are Ulips, according to the Irda data.