ARE ULIPS BEATING THE MARKETS ?? READ ON

Unit-linked insurance plans (ULIPs) investing 80-100 per cent of their assets in equity have found it an uphill task to beat the Sensex in the last one year. A compilation of 62 such schemes shows that only 20 schemes managed to outpace the narrow benchmark, the BSE Sensex, with a return of 83 per cent. The return averaged 83.5 per cent for the entire category. A majority of them have not fully participated in the stock market rally. One reason that can be attributed to this is that insurance companies receive renewal premia at different points in time and may have only deployed their assets in a staggered manner. Their absolute return divergence was also very wide. The top performer – Birla Sun Life Individual Life Maximiser – clocked returns as high 150 per cent, while Star Union Pension Equity Fund was at the bottom of the table with a decline of 5 per cent. Mid-cap stocks that were quoting at a big discount to their large-cap peers same time last year were the top performers, and the funds that invested in this segment managed to top the returns chart.

Though falling short on one-year returns, the performance of ULIPs has improved substantially over the past six months. Majority of them has outpaced BSE Sensex and S&P CNX Nifty and both these indices clocked an absolute return in the range of 3-4 per cent in the year to February. For the same period the CNX Midcap index posted a return of 17.5 per cent and quite few mid-cap funds managed even to beat the CNX Midcap by a few percentage points.

Thirty-four of the 62 schemes studied here have a two-year track record and half of the schemes posted negative returns over a two-year period. The underperformance over a two-year period could be due to fact that markets peaked out two years ago. Insurance companies by and large prefer to stay invested rather than moving into cash during market corrections.

For this analysis we have restricted ourselves to plans that have mandate to invest a maximum of 80-100 per cent in equity investments (the premium are invested in equity, after deducting premium allocation, policy administration and mortality charges).

In ULIPs, appreciation of NAV may not be the actual return to the investor as a host of charges are deducted from NAV-based returns.