Ulips a good fit for investors who panic during mkt declines

The Insurance Regulatory and Development Authority of India (Irdai) has asked life insurance companies not to advertise Unit-Linked Insurance Plans (Ulips) as investment products.

- KARTHIK JEROME

Ulip-MF confusion may reduce

Some insurers have been advertising their mid and smallcap funds heavily. Some distributors and agents have also piggybacked on the popularity of mutual funds (MFS) to sell Ulips. Many customers buy without understanding whether the offering is from an insurer or a fund house.

"A cursory glance at some insurers' advertisements could lead less savvy investors into thinking they are investing in a fund. The reality is they would invest in a Ulip, which would invest in a fund. In a Ulip, one bears a mortality charge for the insurance cover," says Deepesh Raghaw, a Sebi-registered investment advisor (RIA). The mortality charge increases with age.

"A higher charge is deducted in the case of senior citizens, leading to a bigger impact on the maturity amount," says Arvind A Rao, founder, Arvind Rao and Associates. After Irdai's directive, insurers may highlight both the insurance and investment aspects of Ulips, reducing the confusion among investors.

Lock-in: Useful for some

Ulips have a five-year lock-in.

This can be useful for investors who use up the money meant for long-term goals for short-term goals, or panic and withdraw money from equity MFs during downturns.