Even as the mutual fund participation in the equity market has revived during the last six-months, the private insurance players are yet to see a recovery in the demand of unit linked insurance products (ULIPs).
For the year so far, domestic institutional investors still remain net sellers of equities worth $5 billion, although the foreign institutional investors have maintained their equity buying in 2014 with year to date stock purchases worth $15 billion. As per data from Association of Mutual Funds of India (AMFI), net equity inflow for the first ten months of the year is R39,217 crore or $6.5 billion (based on average rupee rate of 60.5 against the dollar).
One of the most popular financial products during the previous bull run, ULIPs have yet not staged a comeback after a clampdown by the Insurance Regulatory and Development Authority (IRDA) in 2010 to curb miss-selling by distributors and high charges levied by insurance companies.
Industry experts say while for bigger bank linked insurance companies gross ULIP flows have improved in the first half of FY14-15, for private players which use an agent-based distribution network, the pace of outflow has abated.
According to Sampath Reddy, CIO, Bajaj Allianz Life Insurance, the inflow into ULIP products is far less than the outflow and for the industry as such the net inflow is yet to turn positive. “Companies that have bancassurance partners may have managed to get improved ULIP purchases but companies that rely on agent-based distribution are still seen selling traditional plans,” added Reddy.
As per to Nidhesh Jain of Espirito Santo, the gross new business premiums from ULIPs for industry leaders, ICICI Prudential Life and HDFC Life during the first half of FY15 stood at R1430 crore and R600 crore respectively. “Even the proportion of ULIPs to the overall portfolios have gone up. In case of ICICI Prudential the contribution in H1FY14 has increased to 83% from 73% in FY14,” added Jain.
However, industry observers say that if the positive bias in equity market continues, ULIPs may see improved interest in the second half of FY15 when most investors plan their tax savings.
Some of the flagship ULIP funds have outdone the benchmark gains this year also as actual equity allocations within the funds have also moved up compared to December 2013.
Bajaj Allianz equity gain fund, HDFC Life growth fund, ICICI Prudential Flexi growth fund and Eviva enhancer fund are some of the schemes that have outdone the 30-share Sensex by posting more than 40% return for year till October 31.
At the end of Sept 2014, equity allocation for funds like HDFC Life equity managed fund, Birla Sunlife Mximiser fund, SBI Life equity elite fund and Bajaj Allianz equity plus fund have gone up by 1353 basis points (bps), 645 bps, 583 bps and 474 bps compared to that at the end of December 2013.
By Devangi Gandhi