The relatively new midcap fund is an exception; rest have to play catch-up to live up to ULIP’s ‘long-term investment’ tag
SBI Life Insurance, a joint venture between India’s largest bank State Bank of India and the leading global insurance company BNP Paribas Cardif, is a significant player in the ULIP market. It is known for ULIP products like eWealth Insurance, Smart InsureWealth Plus, Saral InsureWealth Plus, Smart Wealth Builder etc. The company, which is among the few listed insurers in India, gets a chunk of its first year premium from unit linked insurance plans. Continuing on our ULIP tracking initiatives, we are taking a closer look at SBI Life ULIP equity funds in this article (previously we covered Bajaj Allianz Life funds here, HDFC Life funds here, ICICI Prudential Life funds here).
Unlike in the case of mutual funds, information disclosure in ULIP funds’ publicly available documents is not great. As readers would have noticed so far, only a few companies actually even label their equity ULIP funds in largecap, midcap, multicap etc categories. In the case of SBI Life, we could not find fund categorisation for ULIP equity funds. On the face of it, SBI Life has many equity funds. However, as far as information available in its ULIP newsletter, it seems SBI Life takes pure equity benchmarks for just six of those funds. For the rest, it uses composite benchmarks. Hence, this article will only focus on those six funds with pure equity benchmarks.
Our goal is to bring out whether ULIP equity funds are beating their benchmark indices. In case the ULIP equity funds are just index funds, then we would like to see how much is their tracking error i.e. the difference between ULIP equity index fund and the index itself. ULIPs come with a five year lock-in, which means you cannot withdraw any money before five years have passed from the day you invested.
Beating the benchmark is the minimum a fund can do for your investment. Why? Because when you pay fund management fees to an investment manager, then they have to provide better performance than just a benchmark, which is a basket of stocks that are not actively managed.
SBI Life Insurance at the end of September 2019 managed investor assets of more than Rs 1.5 lakh crore. Out of that, 23% is in equity. Gopikrishna Shenoy is the chief investment officer of SBI Life Insurance.
Our preliminary assessment of the ULIP funds studied shows that if we look at fund outperformance (over selected benchmark) in the one year period, only 50% of funds have done better; in the three year period only 17% of funds have done better; in the five year period, a 60% of funds have done better. In fact, in the since inception period, there is only one fund that has failed to beat the benchmark. Let us take a deeper look.
As mentioned earlier, we have looked at the performance of 6 ULIP equity funds of SBI Life Insurance. These are as follows:
Equity – Launched in January 2005
Equity Pension – Launched in January 2007
Equity Pension II – Launched in January 2014
Index – Launched in January 2010
Index Pension – Launched in January 2010
Midcap – Launched in June 2016
According to information available, the above six ULIP equity funds are benchmarked against a pure equity benchmark. There are other funds as well in the SBI Life stable, but they are benchmarked against indices that comprise equity and debt benchmarks. The latter arrangement makes them hybrid funds, and not pure-play equity funds.
We checked the asset portfolio composition of these six ULIP funds and found that these funds have between 90-99% equity exposure. The rest is invested in money market instruments, but not in other debt avenues.
As per guidelines, equity ULIPs have a regulatory limit of 25% exposure to a sector. This cap can act as a handicap if a ULIP fund wants to take higher exposure.
Take a look at their performance in the chart below.
Equity – This is the oldest equity ULIP fund of SBI Life. The fund is managed by Tarang Hora / Gopikrishna Shenoy. The fund can keep 80-100% of money in equity; as per latest info it is 97% invested in equity. The Equity ULIP fund of SBI Life has bet on stocks like RIL, HDFC Bank, HDFC, Infosys, ICICI Bank, TCS, ITC and L&T. It also has significant exposure to Kotak Banking ETF and Nippon India ETF Bank Bees.
The fund has out-performed its benchmark Nifty 50 (not total return index) in 1-year and 5-year periods, although it failed to beat the index in 3-year period. In the since inception period, this ULIP fund has outperformed the Nifty 50 index by 3.66%.
How does the fund compare with largecap equity mutual funds? The ULIP fund’s 1-year return of 15.6% would place it as the 40th best largecap fund. The ULIP fund’s 3-year return of 10.19% CAGR would place it out of the top 50 MFs. The ULIP fund’s 5-year return of 8.41% would place also in the middle-slot of largecap mutual funds. While a mutual fund scheme’s NAV factors in all the costs, a ULIP’s NAV usually takes into account only the fund management charge. This means the actual ULIP investor return could be lower than the ULIP fund return.
Equity Pension – This fund was launched close to 13 years ago. The fund is managed by Tarang Hora / Gopal Nawandhar. Modelled after the Equity ULIP fund, it is 95% invested in equities. Top portfolio holdings are also quite similar. The fund has underperformed its benchmark Nifty 50 in the 1-year, 2-year, 3-year and 4-year periods. Thankfully, the fund shows a semblance of outperformance in the 5-year period with 8.54% CAGR, 1.17% more than the Nifty 50.
Equity Pension II – This fund was launched in 2014. The fund has out-performed its benchmark Nifty 50 in 1 -ear and 5-year periods. In the since inception period, this ULIP fund has outperformed the index by 0.75% . The fund has failed to beat the index in 3-year period.
Index and Index Pension – Both these SBI Life ULIP index funds were launched in January 2010. The tracking error is 1.64-1.77% in 1-year period, 1.10-1.22% in 3-year period and 0.69-0.76% in 5-year period. As per guidelines, equity ULIPs have a regulatory limit of 25% exposure to a sector. This upper limit may act as a handicap for index funds that are expected to copy an index like Nifty. This 25% sectoral cap prevents the ULIP index funds from having a higher exposure to banking & financials sector like in the Nifty 50 (around 40%). In the past one to two years, banking & financials sector has been among the top performing sectors. This may be why there is a higher tracking error and underperformance of the ULIP index fund versus Nifty 50 index.
Midcap – This is a 3-year old midcap fund, managed by Tarang Hora / Vineet Lakhotia. The fund, although relatively new, is pretty impressive in terms of performance. The fund has given 11.18% returns in 1-year period, outperforming its benchmark Nifty Free Float Midcap 100 that fell 2.15% in the same period. It has managed to beat the benchmark in 2-year and 3 year period as well, and generated hefty alpha. Since inception, the SBI Life ULIP Midcap fund has delivered 12.58% CAGR versus 6.83% of Nifty Free Float Midcap 100.
In terms of portfolio, the SBI Life Midcap’s top bets are in Voltas, Cholamandalam Investment, Indraprastha Gas, PI Industries, Mahindra & Mahindra Financial Services, Bata India, Jubilant Foodworks, Divis Lab, Shree Cement, and ICICI Bank. At the moment, the fund has 91% of its assets in equities.
Disclaimer: Views expressed here in this article are for general information and reading purposes only. They do not constitute any guidelines or recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide/investment advice / intended to be an offer or solicitation for the purchase or sale of any ULIP.
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