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: The current bear market has led to net asset values of equity-based funds of Ulips declining in value significantly. What will be the impact on Ulip buyers?
The market mayhem has not left any financial sector untouched. While till a few weeks ago the industry was discussing the effect of falling markets on mutual funds and banks, now it is the turn of the insurance industry to come under the spotlight for the wrong reasons. According to industry estimates, the net asset values (NAV) of unit-linked insurance plans (Ulips) have dropped almost 30-40 per cent till date in this calendar year, causing severe dent in the fund value of investors.
Falling markets send NAVs plunging
With the stock markets in the doldrums, unit-linked insurance plans, especially growth and balanced funds, have taken a beating. In the case of equity funds, NAVs have dropped 30-40 per cent, while in the case of balanced and other debt funds they have dropped 15-20 per cent.
While this may be irrelevant keeping in mind the fact that Ulips are long-term vehicles, a fall in NAV erodes the fund value. This could affect Ulip buyers who plan to withdraw their funds prematurely.
The second fallout of a market crash is on death cover. Type I Ulips, which pay the higher of sum assured or fund value as death benefit, were sold to investors on the back of high returns that the markets have generated. “Brokers and agents do not sell policies but dreams through Ulip products. Ulips are sold more as investment solutions than as insurance polices, which should not be the case,” says Praveen Aggarwal, director, SMC Insurance Brokers. “Investors who were banking on high returns from Ulips and opted for low sum assured could face the brunt in these times,” he adds.
The repercussions
If you are a long-term investor who has invested in Ulips with a purpose, and doesn’t intend to make premature withdrawals, then you may rest assured. Explains Yashish Dahiya, chief executive officer, Policy Bazaar: “It’s not important how much NAVs have dropped. Ulips are long-term investments. Post deductions they will give returns of 4-5 per cent over the long term. But if you look at them from a short-term perspective, with the bearish market conditions that have prevailed recently, very few funds have positively growing NAVs.”
He further adds: “An important point here is that while the NAV is a good real time...
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