It’s time for Ulips to stop masquerading as mutual funds

livemint.com:

₹100 of assets under management of these companies, a little over ₹11 came from Ulips. As of March 2022, this figure was close to ₹12. Ulips are basically investment plans that come with a dash of life insurance.

Now, the problem with broader averages is that they might reveal what is important but they conceal what is vital. So, if we leave out the primarily government-owned Life Insurance Corporation of India—the country’s largest life insurance company—and look at the figures of only private life-insurers, as of March 2023, for every ₹100 of assets under management of these firms, a little over ₹41 came from Ulips. This figure was close to ₹45 as of March 2022.

So, Ulips, while being an important part of the overall life-insurance business, are the heart and soul of the business of private life insurance firms. Given this, these firms go out of their way to push this financial product. In fact, over the years, quite a few private life insurers—especially when the stock market is doing well—have tried to pass off Ulips as mutual funds (MFs), a trend that has made a comeback of late.

The private life insurers do this by using terms like ‘new fund offer’ (NFO), ‘small-cap fund,’ ‘mid-cap fund,’ ‘diversified equity fund,’ etc. These terms are normally used by equity MFs, which largely invest in stocks. An NFO is a term that usually refers to the launch of a new scheme by a mutual fund.

In the recent past, insurance companies have launched Ulips named as ‘small cap fund’, promising to invest in small-cap stocks—stocks ranked 251st and beyond in terms of market capitalization. Now, there are a few things that stand out in ads of such and other similar Ulips planning to invest in stocks. First, nowhere do they mention that