There are many investors who have either knowingly or unknowingly invested in Insurance Policies expecting them to be a safe and good source of returns. In many cases, their primary objective (and even secondary) is not to benefit from the underlying life cover (or sum assured) provided by the Insurance policy.
When one invests in a ULIP or Unit Linked Insurance Policy, the underlying investment in this insurance policy is same as a mutual fund. The Insurance Company also has a suite of funds which an investor can select to suit their requirements. These funds are valued daily and the valuation is reflected in your policy statement after deducting the charges.
This blog note is going to assess the underlying investment options for one Insurance Company ‘ ICICI Prudential’ and compare the investment options with similar options with ICICI Prudential Asset Management Company (Mutual Fund). The blog will not consider the underlying cost / expenses of an insurance policy such as Premium Allocation charges, ongoing mortality and administration charges. Thus the focus will purely be consistency and quality of investment options.
Bluechip Equity Funds Category
ICICI Pru Life Bluechip vs ICICI Pru Bluechip Fund
This is relatively a simpler category to compare as the investment universe for both the insurance & mutual fund arm is restricted to top 50-100 companies in India. In last 5 years, the Insurance Bluechip funds clocked a return of 6.01% CAGR vs its Mutual fund counterpart at 9.22%, an under performance of insurance fund returns by 3.21% annually.
Bluechip – Yearly returns of the Insurance (Light Blue) & Mutual Fund (Dark Blue)
To see the impact over a period of time, below chart reflects how Rs. 10,000 invested in the two funds fared over last 5 years.
Bluechip – Insurance fund return (Blue) & Mutual Fund (Magenta)
Multicap Investment Funds
We next analysed the investment funds which invest across a spectrum of Companies – Large to small where the underlying funds were
ICICI Prudential Life > ICICI Pru Life Multicap Fund
ICICI Pru Mutual Fund > ICICI Pru Multicap Fund
In last 5 years, the Insurance Multicap funds clocked a return of 5.31% CAGR vs its Mutual fund counterpart at 9.07%, an underperformance of insurance fund returns by 3.76% annually. In 2018, the level of performance gap was extreme with Insurance fund getting -9% returns vs Mutual fund having 0.21%
Equity Multi Cap – Yearly returns of the Insurance (Dark Blue) & Mutual Fund (Light Blue)
Equity MultiCap- Insurance fund return (Magenta) & Mutual Fund (Blue)
Asset Allocation – Balanced Funds
This category invests funds in a combination of debt and equity. We compared following two funds:
ICICI Prudential Life > ICICI Pru Life Active Asset Allocation Fund
ICICI Pru Mutual Fund > ICICI Pru Balanced Advantage Fund.
While the insurance fund has been around for only some time, 1 year return of the insurance fund is 6.99 % vs 10.79% of the mutual fund, an under performance by 3.8%. In 2018, while the insurance fund was struggling with a -2.64% return, the mutual fund got 2.44% returns.
Balanced Funds – Yearly returns of the Insurance (Light Blue) & Mutual Fund (Dark Blue)
Balanced Funds – Insurance fund return (Blue) & Mutual Fund (Magenta)
Debt Fund Categories – Money Market Funds
From Equity, we analysed the debt fund categories. The first one in this category was money market funds. These funds typically are meant for short duration investments and are of low risk. The available investment options and returns within this category hence are not many and the returns between the comparative options generally between +/- 0.5% range. With this background, it was a surprise to see that the insurance fund in last one year had 6.02% return vs Mutual Fund 7.88%. The funds looked were :
ICICI Prudential Life > ICICI Pru Life Money Market Fund
ICICI Pru Mutual Fund > ICICI Pru Money Market Fund.
Money Market – Yearly returns of the Insurance (Dark Blue) & Mutual Fund (Light Blue)
Money Market – Insurance fund return (Magenta) & Mutual Fund (Blue)
Dynamic Bond Fund Category
The last category within the debt funds, is a challenging one to match as a same fund can behave differently at different points of time and taken on different level of good / bad quality bonds to enhance its returns. The closest comparable funds were:
ICICI Prudential Life > ICICI Pru Life Income Fund
ICICI Pru Mutual Fund > ICICI Pru All Seasons Bond Fund
Within this category, the Insurance fund again didn’t fare well. Over last one year, the insurance fund clocked 8.64% vs the Mutual Fund having a return of 10.16%. Over longer duration of 5 years, the difference returns were 6.62% vs 8.73% respectively.
Dynamic Bond – Yearly returns of the Insurance (Light Blue) & Mutual Fund (Dark Blue)
When we look into all of these metrics, a couple of questions come in our mind :
Dynamic Bond Funds – Insurance fund return (Blue) & Mutual Fund (Magenta)
Thoughts to Ponder
After going through the sheer under performance of the insurance returns vs the asset management mutual fund returns, the following questions cropped up :
- Why is the insurance arm of a group delivering not so great return as their mutual fund arm;
- Is it a matter of lack of talent at fund management level within the Insurance Company or good management steer ?
- Are the insurance fund managers taking it a bit easy on investor’s money and not giving the necessary push to create the alpha ?
We are not sure if these questions would ever get a fair response, but one thing is for sure. Funds in Insurance arm are far more stickier and can easily stay for a longer term compared to the mutual funds. They even have favourable taxation (no tax) on their side along with lots of lock-in options to keep redemption pressures away.
If despite of above, they are still under performing, we might as well get our money to work harder with their mutual fund siblings and topup with at Term cover. Every rupee costs !
Note – Repeating once again, in the above analysis you just saw the difference in investment fund return. If you top it up with the fees & charges levied by an insurance policy, you would be sitting within an extremely under performing investment option.
Disclaimer – We have analysed the insurance and investment funds of ICICI Prudential Life Insurance and Asset Management Company purely from the perspective of they being the largest private sector participants and will have a good range of investment products to suit investor requirements.