Product Re-Positioning among the ULIPs of MFs

The arrival of private insurance players by the dawn of the 21st century, found an unusual spurt in launch of Unit Linked Insurance Plans(ULIPs). Since 2000, Ulips comprise over 80 per cent of the annual life insurance policy sales in the country. Today when we hear about ULIP we generally relate to the Insurance companies only. We do not seem to know that there are MFs who offer similar products (ofcourse at a lower target amounts) launched much earlier than the first private insurance company's ULIP. This prompted me to look into the MF world of ULIPs and how they tried to remain in the customer's visibility.

UTI-ULIP 1971 was the first mutual fund scheme that had SIPs that are linked with life insurance coverage and accident insurance coverage at the same time gave a very low entry load and operating expenses. The tax benefits under Sec 80 also added to its glamour. there were private companies like M/s Investlinks Consultancy services Pvt Ltd, Trichur that promoted monthly SIPs through salary savings in 1980s. As time progressed, the UTI-ULIP 1971 revised the target amounts, although the essential features remained the same. In July 2008 , they have revised the target amounts to Rs. 15 lakhs. But now there is a difference:

• Monthly SIP system has come with low installment of minimum Rs 500 and with multilples of 100 above the minimum level,
• Provision for remitting the insurance premium on time by reducing units from the accumulated units is introduced,
• Accident insurance coverage remains at Rs.50,000
• Top up facility is available(one can remit more without having increased sum assured)
• The lowest target amount is 60,000 in 10 year plan and above it, in multiples of 12,000
• The lowest target amount is 90,000 in 15 year plan and above it, in multiples of 15,000
• The entry is limited for 12-48.5 in 10 year plan and 12-42.5 in the 15 year plan
• The Sec 80 c of IT Act 1961 provide for saving upto Rs.1 lakhs in the specified schemes and ULIP is one of such. One can have rebate available on the policy in the name of spouse and upto two children

In 2001, when Principal Child Benefit (Super Saver) Future Guard plan was launched with a SIP for 7, 10 and 15 year, the LIC MF ULIS (earstwhile Dhanarakhsha 1998) was the only scheme that was comparable to UTI-ULIP 1971. In fact, the Future Gurad had only 50,000 accident insurance coverage as the frill.

In 2005, DSP ML Super SIP was introduced with insurance coverage for long term investors. The super SIP did not qualify for taxrebate. The onslaught of the Insurance companies increased by 2007 and Kotak answered back with introduction of insurance cover as frill under the name Kotak Star Kid in Kotak 30, Kotal Opportunities fund and Kotak Tax Saver schemes. The Entry load was 3.25% in such cases. However, the nominee had to be a kid in this case!!!

In the same year HSBC Asset Management Co introduced systematic investment plan (SIP) in any one of its equity schemes will get a critical illness cover of up to Rs 10 lakh. Illnesses that qualify for the cover are cancer, stroke, bypass surgery, accidental death and accidental permanent disability amount limited to Rs. 72,000 and age of entry limited to 20-50

But when UTI ULIP 1971 has been redesigned, the Reliance has introduced SIP Insure in its 10 schemes with maximum insurance amount of Rs. 10 lakhs:

Reliance Growth Fund - Retail Plan
Reliance Vision Fund - Retail Plan
Reliance Equity Opportunities Fund - Retail Plan
Reliance Equity Fund - Retail Plan
Reliance Equity Advantage Fund- Retail Plan
Reliance Regular Savings Fund – Equity option
Reliance Regular Savings Fund – Balanced option
Reliance Banking Fund
Reliance Pharma Fund
Reliance Media & Entertainment Fund
Reliance Diversified Power Sector Fund – Retail Plan

Investors in 20-46 age group are permitted. Minimum SIP amount is 2000 and in multiples of Rs. 1 thereafter. The death claim amount is invested in the scheme and not paid out to the nominee. If nominee so chooses to take out the claims, an exit load of 2% charged. There is no specific insurance charges to be paid by the customer or accounted from the unitholder's fund .

The Birla Sun Life MF has responded with Century SIP offering maximum insurance coverage up to Rs.20 lakhs. The term of the SIP is 55 minus the age of the investor.

• Year 1 – Insurance coverage till 10 times of Monthly SIP Installment
• Year 2 – Insurance coverage till 50 times of Monthly SIP Installment
• Year 3 onwards – Insurance coverage till 100 times of Monthly SIP

Here again, the cover is subject to a maximum limit of Rs 20 lakh, and is not payable if the SIP is discontinued before 3 years, or the investor defaults on payments of SIPs on two consecutive occasions. The insurance cover is free like in Reliance.

SIP and insure has been deliberately coined by the MF industry clearly away from the clutter of ULIP world. Given the same asset allocation and term, a SIP in MF scheme should do better than ULIP from any insurance company because of front end deductions in the latter. After all insurance is for coverage and it has a price; It is not an alternative for saving and investment.

Lost in the woods, the ULIPs from Mutual Funds of 20th Century, on the onslaught of the Private Insurance Companies offering all flavours of ULIPs, emerged as SIP Insure in the 21st Century. Well carved out niche for average investor seeking low-cost insurance, reasonable cover and a good investment vehicle with or without tax benefits.