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The recent rally in the stock market has seen spectacular and secular returns on every equity schemes. LIC the market leaders, which controls over ¾ share of life insurance are also channelising funds into equity. Liberalisation has popularized ULIPs where investors get to choose the asset allocation preferably in equity linked schemes. ULIPs invest over 80% of their funds in equity.
This surge of retail money pouring into ULIPs, Insurance companies see themselves becoming a counter weight to foreign institutional investors (FIIs), but doubts whether the policy holder will continue buying ULIPs if the market trend declines.
ICICI Prudential expects to invest around Rs. 7000 crore in equity this year. Investments by insurance industry will be in the region of US $ 40 billion and another US $ 40 billion to be invested by Indian Mutual Funds. This is the collective investment of Indian Institution as cited by Mr. Gaurang Shah, M.D of Kotak Mahindra Life Management division.
A disadvantage experienced by mutual fund is that the high net worth investors and large players get out when the market is high volotile, however life insurance policy holders stay put in times of turmoil. Insurance companies have front end charges because they have to maintain a large distribution network. However the rise in stock has helped insurance companies to overcome this major disadvantage of their front - end- charges, since the investor have to stay invested for atleast six years for the front end charges to get neutralised by lower recurring charges.
The present trend in the stock market is expected to continue as it is believed there is lot of liquidity trying to find the right asset in our Indian economy. India will continue to remain one of the most attractive destination as consumption and capex cycles are moving towards a higher growth route, boosting economic growth.
Liquidity overflow created by the US Federal Reserve is eventually moving into stronger asset classes which have better fundamentals and are promising sustained growth momentum. This bestows hopes in the minds of the insurers that the ULIP party will continue unabated if the present market is any indication.