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.

Saving for Children: THE MF route

Indians have a strong family bonding than any modern community. Saving for children is one of its visible signs. Securing future of the children, some times takes the tax route through the Sec 80 of the Income tax Act 1961. Insurance companies have done their bit eversince the segment was open for private entry ever since year 2000. The PPF, NSC, PO FD, PO RD, Bbank RD and Bank FD are additional sources for saving for children. Among all these, the MF route is substantially longer and one need not specify the time limit for saving if properly allocating funds depending upon the age of the child. Unlike the insurance shemes that take huge upfront cut, the MFs provide substantial investment growth opportunities - The effects of compounding is properly harnessed in the MF for an early start, systematically in the same market conditions with similar asset allocations.

Saving through the Mutual Funds have been there from the days of CGGF-1981 from the erstwhile UTI. The reforms in the capital markets, especially the shift from the fixed interest regime made such products unviable and finally faced closed down by 2003. But by that time, market related saving schemes from the private MFs have stabilised in tge market along with the CCP-1993 from the UTI MF. Today, CCP-1993 is the largest fund among the children's segment with over Rs.2369 crores as at June 30, 2008.


In fact UTI offers two schemes for children: the CCP-1993, a balanced scheme with maximum 40% allocation to equity and another CCP Advantage Fund 2004 that has a majority equity allocation. The upper age limit is capped at 15 years for entry into CCP. The AUM of advantage Plan stood at Rs.23.42 crores by June 30, 2008.

Tata Young Citizens Fund 1995 had an AUM of Rs. 141.07 crores in june 30, 2008.

Templeton India CAP-Education Fund 1998 provides for withdrawal maximum 4 times befor the child attain 18 years of age. But in their Gift Fund option brought in 2005, one can withdraw partially or fully after 18 years of age only.

HDFC Children's Gift Fund was introduced in February 2001. The Savings option is emphasizing a bond flaour wheras the Investment option is concetrating on equity flaour. The AUM of Investment option crossed Rs.124 crores in June 2008, whereas the Savings option, AUM, hardly inching above Rs 51 crores during the same period.

ICICI Pru Child Care Study plan of August 2001 has clearly mandated it for children of age 13-17 years with majority asset allocation for bonds. The gift plan, but, concentrates on equity asset allocation and mandated it for children upto 13 years of age. The AUM of of Study plan was 27.5 crores whereas that of Investment plan stood at Rs 114.81 crores in June 30, 2008

Principal Child Benefit Super Saver (Career Builder) Paln was also launched in August2001. 7, 10 and 15 years lock-in are available in this plan and anytime entry is possible. However in the Future Guard plan, the annual SIPs only is permitted. It has got additioonal life cover of the beneficiary child upto 50,000.

LIC MF Children Gift Fund launched in October 2001, has got AUM of Rs. 7.88 crores. Highly skewed equity allocation exists as on June 2008.

Magnum Children's Benefit Plan was launched in January 2002. Its asset allocation is skewed to bonds. AUM Rs 20.07 Crores


BOB MF Children Fund 2004 has got Gift plan and also study plan. The smallest in size is yet to cross Rs1 crore in AUM.


What is the logic in having a specific children oriented scheme when the child grow in age, the re-purchase goal is nearing excercise. So how can one have a moving target focussed with respect to fund management?

Looking from the angle of customer, I would put it like this: When your child is above 15 years of age, his need for money is sure to arise in 1-3 years. Depend upon the Fixed Maturity Plans or CPOSs instead of any of the above detailed products.

But if you are looking for Saving for children in 12-15 years age, you may be lured to put the 'plain children schemes'; DO NOT GO full throttle: Put 60% of your funds in an Equity scheme of above list and the balance in Fixed Maturity Plans or CPOS. Here you may even look at the traditional products in comparison to the MF products and take a learned decision as far as the goal amount required, especially the debt allocation. The 60% equity allocation will help you top up your gains or limit your lossses. The danger is that an astute sales person, may lure you to believe that a standard portfolio will give you the same result: which is untrue. Your goal horizon, is your own; it is not the same as that of the Fund that he is promoting.

If your child is in 10-12 age bracket, the goal is 8-10 years away. You can go for any of the balanced schemes given above or any of the diversified funds or index funds upto 80% of your asset allocation. The balance 20% shold be in MMMF/Liquid MFs to provide liquidity support to your portfolio. suppose the market is in a bear phase. You can use the funds to buy more additional equity investments for your baby.

When you invest for 5-10 years of age, you can buy equity 'children funds' . If it is a rising market like 2005-2008, equity will increase your wealth, but adequate care has to be made to shift to balanced fund when fluctuations like post Jan 2008 occur. The created wealth in the market become usable only when you repurchase and transfer it into another asset.

When investing for kids up to 5 years of age, you can gor equity schemes or balanced schemes depending upon the market cycle at the time of your entry. Some people are of the opinon that one should not be investing for children below 5 years. However, compounding principl esaya that earlier the better; larger the better. So have a SIP.

The wisdom says that balanced funds perform better in asset allocation strategy over longer periods of time than equity as the latter has more expenses eating into the fund corpus.