Let us look at a fictitious conversation between a ‘Super Senior Vice President – Strategy and Execution’ and an IFA:

Sir my client, Subra, has invested in our company’s ULIP with the least fund management charges…but it is doing very badly…what should I do?

Sir my client is not a  greedy or a crazy guy, and understands equities. Over the past 7 years he has been paying a premium of Rs. 8000 per month..and has paid about Rs. 700,000 as premium. The policy is worth Rs. 707,000. Sure he got a life cover (which is over and above the NAV of the fund)…so if he were to die now, his nominee gets Rs. 500,000 as claim and Rs. 707,000 of his own accumulation.”

What should I do now? Keep the fund scheme or should I surrender it?” He is putting pressure on me Sir.

Super Senior Vee Pee (fund investing)

Dear IFA,

You realise that equity investments should be viewed from a long term point of view and you should not be unduly concerned about the short term fluctuation. About 7 years ago when your client invested, we had paid you a hefty commission of 55% (never mind IRDA clamped down) and thus only about 45% of the amount of money got invested. So if you see the clients money ONLY, the money has doubled! So first of all it is not a bad investment, right?

Far more importantly equity should be seen as a long term investment. So if in the long run equities do well (that is what they have done so far, so I am assuming that the same thing will continue till infinity. This is basic.

Now in a group of 32 UNIT Linked funds we are 27th, you should take pride that there are 5 schemes behind us. Fund management is not an easy task. Sorry, but an IFA may not really be well equipped to understand the intricacies of investing. If you see our last 5 years ‘super slow running average on a daily basis’, you will understand that in 3 out of 5 years we have stood first in our group. Never mind that this is the period 2002-2004. 

You will also find that Mr….X our fund manager was specifically hand chosen from his previous job where he was almost beating  the index. Regarding costs, IRDA has now made it difficult to charge more.

IFA: Sir none of this I can tell the client…please tell me what to tell the client.

Exec: Tell him unit linked equity is for the long term

IFA: Sir, that client knows..and 2004 to 2012 is a long period no?

Exec: No, no, it is not long term. Long term is 20-22 years

IFA: Sir the Sales head said long term is 2 years, and you are saying 22…

Exec: that sales head has quit…..

hello, hello…..bye…..

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  1. This is exactly what happens to most of us but what do you suggest should be the take away from this conversation for a third person , should we hold for 22 years or take the money out and direct them into better performing MFs.

    Or should we just check the returns by considering only the amount invested i.e by excluding the charges, but it does not work that way , does it?

  2. sindhu

    A blog is not a planner. At best I can be a pointer. You have to consider ’00s of other things before u take portfolio decisions. Personally a term insurance + direct equity makes sense. However you will NEVER be able to create a US bluechip fund or a Volatility fund – the draconian brokerage charges you pay will not allow you to play the volatility, so u need a mf to do that. To evaluate, and then decide is the job of the planner you have OR if you are a d-i-y person, you need to have/ develop the skills.

  3. Thank you Sir for the response.
    I am in the processes of developing my skills of evaluation and your blog is one major source. Thank you !

  4. Ulips are not so bad.
    Personally i have got 8% irr in balanced fund ulips for last 8 years .Its a pension plan with no mortality chgs.

  5. just out of curiosity , i checked the performance of equity oriented balance equity mf for last 8 yrs on VRO.out of some 22 funds , half gave CGAR of 14.75% and above , and except last two, all gave 10.45 % and above.

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