LIC MF Unit Linked Insurance Scheme: Investment cum Insurance

LIC Mutual Fund Unit Linked Insurance Scheme is an investment cum insurance product, which offers investments in equity oriented hybrid asset class along with life insurance cover. Launched in 1989, the Unit Linked Insurance Scheme is one of the oldest active mutual fund schemes in India. Investors should note that, despite certain similarities in features, LIC Unit Linked Insurance Scheme is a mutual fund scheme and not a Unit Linked Insurance Plan (ULIP), which are sold by life insurance companies. The expense ratio of the LIC Mutual Fund Unit Linked Insurance Scheme is 2.88%, which is fairly similar to expense ratios of many equity or equity oriented mutual fund schemes which do not have the insurance feature. The scheme is eligible for tax savings benefits under Section 80C of Income Tax Act.

There are only two investments cum insurance products in the mutual fund industry, one offered by LIC Mutual Fund and another offered by UTI Mutual Fund. While the UTI MF investments cum insurance product is far larger in asset size (AUM), LIC MF Unit Linked Insurance Scheme has outperformed in the last 2 years, giving 14% return in the last one 1 year and 13% CAGR return in the last 2 years. In the last 5 years, the fund gave 14% CAGR return. These returns are better or at par with average balanced fund returns; the insurance cover makes LIC MF Unit Linked Insurance Scheme an attractive investment proposition for investors, who are also looking insurance protection.

Scheme Performance

The chart below shows the annualized returns of LIC MF Unit Linked Insurance Scheme versus the investment cum insurance category over various trailing time periods (ending August 29, 2018).

The chart below shows the annual returns of LIC MF Unit Linked Insurance Scheme versus the category over the last 5 years.

You can see in the chart above that the scheme is positioned more aggressively than its peer – it outperformed in the bull market years and moderately underperformed in corrections. The current value of Rs 5,000 monthly SIP in the scheme over the last 5 years would be Rs 3.97 Lakhs, with a cumulative investment of Rs 3 Lakhs. Though the fund is more aggressive than its peer, its standard deviation (volatility) is lower than the standard deviations of average balanced funds.

Asset Allocation

As per the scheme information document of LIC MF Unit Linked Insurance Scheme the minimum and maximum equity allocations are 65% and 80% respectively. The minimum and maximum debt allocations are 20% and 35% respectively. The scheme enjoys equity taxation. Currently the 77% of the asset allocation of the scheme is in equity and the rest in debt and money market securities. The risk profile of the scheme is moderately aggressive.

Investment Strategy

Sachin Relekar and MarzbanIrani are the fund managers of this scheme. The stock selection of the fund managers are based on the fundamentals of the business, the industry structure, the quality of management, corporate governance trends, sensitivity to economic factors, the financial strength of the company. The fund managers have a clearly articulated investment framework based on 5 parameters:-

• Strong & sustainable earnings growth in the long term


• Quality management & governance


• Competitive advantage


• Scalability of business


• Capital efficiency

The market cap bias of the equity portion of LIC MF Unit Linked Insurance Scheme is towards large cap. The scheme is well diversified across sectors like banking and finance, chemicals, automotive, manufacturing, pharmaceuticals and cement; the top 3 sectors account for only 37% of the equity portfolio of the scheme. The fund is well diversified from a company concentration perspective, with the top 5 stocks, HDFC Bank, ICICI Bank, Sterlite Techno, State Bank of India and Interglobe Aviation accounting for 25% of the equity portion of the scheme portfolio.

Investment Options

There are two investment modes:-

• Single premium:

  Minimum investment of Rs 10,000 for 5 or 10 year terms



• Regular contribution:

  Term for regular contribution (premiums) is 10 years or 15 years. Minimum regular premium is Rs 1,000 for the monthly premium mode or Rs 3,000 for the quarterly premium mode. Half yearly and annual premium payment modes are also available.

Life Insurance Cover

Life insurance cover or sum assured will be based on the premium you pay. LIC MF Unit Linked Insurance Scheme offers cover of up to Rs 15,00,000 is subject to maximum of 5 times of annual income AND upto age 69 years Age Nearer Birthday for existing investors and 65 years for new investors. It also offers Personal Accidental Cover benefit to investors in the age group of 12-70 years. Since this is an open ended scheme, you can exit the scheme any time after the lock-in period. There is no exit load or surrender charges. You will get life insurance cover for as long as you are paying premiums.

Other Benefits

LIC MF Unit Linked Insurance Scheme is eligible for tax savings under section 80C of Income Tax Act 1961. Investors can claim deduction of up to Rs 150,000 from their taxable income by investing in the scheme. LIC MF Unit Linked Insurance Scheme also offers guaranteed bonus. The scheme will also pay 0.5% loyalty bonus upon maturity of the term.

Conclusion

In this post, we have reviewed LIC MF Unit Linked Insurance Scheme. This scheme is suitable for investors who are looking for tax savings and capital appreciation. LIC MF Unit Linked Insurance Scheme is less risky compared to Equity Linked Savings Schemes (ELSS) due to its hybrid nature. The life insurance cover is an added benefit for investors, who are looking to buy life insurance protection. You should have a minimum investment horizon of 3 years, but since this is an equity oriented scheme, a longer tenor will give better results. Investors should consult with their financial advisors if LIC MF Unit Linked Insurance Scheme is suitable for their investment needs.