ULIP returns comparable to mutual funds in long-term, says Edelweiss Tokio Life CIO Bismillah Chowdhary

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Updated: July 3, 2018 3:15:24 PM

Even as investors may be looking to tweak their asset allocation in the new fiscal year, Bismillah Chowdhary of Edelweiss Tokio Life Insurance says that ULIPs provide an excellent blend of insurance and investment, and returns are as competitive as mutual fund returns over a reasonably long-term horizon.

Large chunk of ULIP funds have out-performed their benchmarks and have provided superior returns, says Bismillah Chowdhary of Edelweiss Tokio Life.

Even as investors may be looking to tweak their asset allocation in the new fiscal year, Bismillah Chowdhary of Edelweiss Tokio Life Insurance says that ULIPs provide an excellent blend of insurance and investment, and returns are as competitive as mutual fund returns over a reasonably long-term horizon. In an interview to FE Online, Bismillah Chowdhary, CIO, Edelweiss Tokio Life said, “The newer generation of ULIPs not only offer low cost structures (including the insurance cover cost) but are directly comparable with Mutual Funds which make them more lucrative.” Bismillah Chowdhary shares his valuable insights on the stock market outlook in an interview with Sushruth Sunder of FE Online. Here are edited excerpts:

How do ULIPs measure up as an investment?

ULIPs are an excellent combination of insurance and investment provided the investment is made with long term time horizon. ULIPs give an edge to customers as it provides multiple funds in a single plan ranging from debt to pure equity. This provides an opportunity to customers to switch between funds multiple times and that too without any exit load and tax impact.

What about the cost; how do ULIPs compare with mutual funds?

The newer generation of ULIPs not only offer low cost structures (including the insurance cover cost) but are directly comparable with Mutual Funds which make them more lucrative. The premiums are tax exempt and more importantly the maturity proceeds are tax free (provided the Sum Assured is 10 x premium) which provides an added advantage. Large chunk of ULIP funds have out-performed their benchmarks and have provided superior returns. After the recent regulatory changes on cost, new age ULIPs have almost becomes comparable to mutual funds. On a five-year basis, it implies that the term premium is virtually free.

Are there any regulatory restrictions on ULIPs?

There are certain regulatory restrictions with regard to single stock exposure, sectoral exposure, promoter group exposure etc which a fund manager has to take into consideration before investing ULIP funds. Even after considering these restrictions, there is enough legroom for the fund managers to make superior risk adjusted return for investors. Such regulations are not unique to ULIPs as most regulated investment management industry will have such regulation in one form or the other. I personally believe that such norms are required as it protects policyholder’s interest in the long run by ensuring proper diversification.

What is your near-medium term outlook on the stock markets?

We continue to remain structu­rally positive on the equity market in the medium to long term. The economic ecosystem of India has undergone an extreme overhaul at all levels since the time it gained Independence. Reforms such as Aadhaar, GST, Insolvency and Bankruptcy Code (IBC), Demonetisation, Bank Recapitalisation, RERA can collectively transform our economy to a faster, robust and more sustainable growth path. I believe that a strong foundation has been laid and we are at an inflexion point.

What is your view on the stock market valuations?

Given the growth rates we are expecting, and the recent correction in mid-caps and large caps, the valuations don’t appear to be stretched. If we had this discussion two months back, my view may have been different. Lot of catching up has been done after the correction.

This interview was originally published on 10 April 2018 on www.financialexpress.com

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