Investments need time to grow. That is why long-term investments can change your life: for better or otherwise. Therefore, while you need the discipline to stay invested, you also need some control over it. Discussing how to do this are: Leo Puri, managing director, UTI Asset Management Co. Ltd; R.M. Vishakha, managing director and chief executive officer, India First Life Insurance Co Ltd; and Sumit Shukla, chief executive officer, HDFC Pension Management Co. LTD.

The panel was moderated by Deepti Bhaskaran.

Bhaskaran: When it comes to suitability for a long-term goal and I’ll just narrow down the goal and say retirement. So, for long-term goals like retirement, why do you think your respective products are the best? 

Puri: I’ll just confine myself to talking about how you can use mutual funds to meet retirement goals. I think, at the end of the day, mutual funds are highly flexible tax-efficient instruments which can be used for a multiplicity of goals and long-term saving is absolutely one of them. So what you have is, first of all, flexibility in terms of asset allocation and risk if you like modelling. 

What you do have to be though is disciplined because there is flexibility. The flexibility also on the inverse as it permits you to withdraw for emergencies, which is a good thing, if you happen to be someone who is disciplined. 

Bhaskaran:  Sumit, what’s your view? 

Shukla: Our product, which is the National Pension System (NPS), is based on retirement. One big thing which really differentiates any retirement product—is its charges. I think that matters a lot because there’s a long-term play plays on the corpus because there’s a long-term play and if you are paying charges on a yearly basis, it really impacts your portfolio in a big way. 

So, I think charges are something where NPS being the lowest charged product helps the person to create a larger corpus. I think NPS today, particularly if retirement is the goal, is one of the better vehicles available for investment. I think it is evolving and in the due course of time will become even better.

Vishakha: Long-term goals and retirement in particular, has got two components. When people use the word pensions, I actually cringe because the guaranteed money that you get after you retire. In the current environment, annuities are actually guaranteed upfront. So we are taking a guarantee for the next 15 years or 20 years upfront and saying that this is the returns that you would get irrespective of where the market goes. So, I think that from a customer perspective is a really sweet deal because life insurance companies are the only companies which actually take away the risk from the customer and take it to the company.

Bhaskaran: When you look at the mutual fund experience, the average holding period for a customer is 2 years of equity mutual funds. So, doesn’t no-exit barrier actually encourage churn?

Puri: The question is what implication you draw from the fact that the average holding period is 2 years. There are three possible explanations. One, the product is being mis-sold and actively churned, which has happened in the past. I think it is happening less now. The second is that I take an independent view on my portfolio that I would like to actually cash in if I like. That’s actually one of the benefits of a mutual fund product. 

By the way, very often he will reinvest. So I may have bought an equity fund, I may have bought a mid-cap equity fund and I think mid-caps have run up a lot and I should, if I’m sensible at a certain point, actually get out of that and get back into a large-cap fund or get into a balanced fund or get into a fixed income fund if I think equity markets have moved on. So that’s a very natural thing to actually do. 

Vishakha: If you’re looking at a like-to-like comparison for a Ulip; mutual funds are a lot of do-it-yourself. You need to be able to plan your portfolio, you need to revisit your portfolio, and to be able to be disciplined about it and monitor it. 

If you look at it from a life insurance perspective, there is somebody else who is doing it all for you. So if you want to do a fill it, shut it, forget it approach and say I’ve got better things to do than manage my money, then I think that’s where Ulips will provide as much run for money as a mutual fund does and the investment pattern and the structure of it and the responsibility is less on the investor.... 

Puri: That’s because I make it so expensive for you to leave, that you have no choice. I trap you into a surrender cost that makes it impossible. I expose you to the same risk and I build a little prison around you through a surrender cost...

Vishakha: There are no surrender cost in Ulips, not anymore. On top of it, if you don’t pay money, it goes into policy discontinued fund where it is serviced and a minimum guarantee and the upside are given back to the customer...

Bhaskaran: But the costs are front-loaded in Ulips. 

Vishakha: I can prove it with empirical data that after 10 years, mutual funds and Ulip products actually work brilliantly in the same effective way. So there is empirical data to it and I’ve done enough research on it. I’ve had enough arguments with my CIOs before I say that. 

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