ULIPs: From A Chequered Past To An Unsure Future

The recent proposal to make mandatory 25% of ULIPs investment in government securities (g-sec) has left many surprised and disheartened. ULIP funds are market-linked insurance products wherein a portion of the premium is invested in funds of a policyholder’s choice. As of now, it permits a minimum investment of 80% in equities. However, the current proposal, if accepted, will change the dynamics. Investors will have to be content with limited choices and lower returns. The intention behind the proposal might be noble – financing long-term projects – but the repercussions might not be.

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List of ULIP Funds ~
Fund Name
AUM
Returns (in %)
3 Year
5 Year
10 Year
1,981 Cr
Returns
10.26%
Returns
9.34%
Returns
11.99%
Highest Returns
Get Details
35,377 Cr
Returns
17.12%
Highest Returns
Returns
13.42%
Returns
14.3%
Get Details
12,572 Cr
Returns
23.89%
Highest Returns
Returns
18.97%
Returns
18.15%
Get Details
3,551 Cr
Returns
14.22%
Highest Returns
Returns
11.96%
Returns
12.39%
Get Details
9,938 Cr
Returns
17.65%
Returns
21%
Returns
22%
Highest Returns
Get Details
5,458 Cr
Returns
15.69%
Highest Returns
Returns
13.13%
Returns
13.89%
Get Details
5,005 Cr
Returns
17.13%
Highest Returns
Returns
15.25%
Returns
15.45%
Get Details
13,553 Cr
Returns
14.01%
Highest Returns
Returns
11.47%
Returns
13.09%
Get Details
3,237 Cr
Returns
13.92%
Returns
13.31%
Returns
14.59%
Highest Returns
Get Details
3,340 Cr
Returns
10.07%
Returns
9.16%
Returns
10.33%
Highest Returns
Get Details
1,446 Cr
Returns
8.45%
Returns
8.08%
Returns
10.12%
Highest Returns
Get Details
446 Cr
Returns
11.97%
Returns
10.83%
Returns
14.22%
Highest Returns
Get Details
526 Cr
Returns
11.88%
Highest Returns
Returns
10.04%
Returns
11.31%
Get Details
130 Cr
Returns
12.22%
Returns
11.57%
Returns
13.05%
Highest Returns
Get Details
6 Cr
Returns
10.54%
Returns
9.42%
Returns
11.07%
Highest Returns
Get Details
219 Cr
Returns
13.9%
Highest Returns
Returns
13.56%
Returns
13.55%
Get Details
2,730 Cr
Returns
9.84%
Highest Returns
Returns
7.4%
Returns
-
Get Details
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Disclaimer :
˜The insurers/plans mentioned are arranged in order of highest to lowest first year premium (sum of individual single premium and individual non-single premium) offered by Policybazaar’s insurer partners offering life insurance investment plans on our platform, as per ‘first year premium of life insurers as at 31.03.2025 report’ published by IRDAI. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. For complete list of insurers in India refer to the IRDAI website www.irdai.gov.in

ULIPs were revived after the 2010 regulatory changes that turned around the product and made it more investor-friendly. From overcharging investors to becoming one of the low-cost investment products, the turnaround was remarkable. They allowed investors to merge investments with insurance at a low premium. And then there were the tax benefits an investor could avail under Section 80C. Now again, ULIPs are set to be “reformed”.

How will the recommendations affect you the investor?

The proposal will whittle down choices available to you as a policyholder. Many of us who look for pure equity funds may not be interested to continue with ULIPs. The proposed recommendation will force investors into a product that is likely to generate less than 8% returns. When equity market is slow, government securities’ exposure could provide cushion. However, in a scenario when the market is rising, 100% equity exposure can help generate good returns.

How will it affect ULIP as an investment instrument?

ULIPs have had a jerky track record. They never were the first thing on an investor’s mind and had only recently picked up speed. But if the draft proposal is accepted, ULIPs’ sale will be hit. The proposal aims to curtail investment in equity funds that tend to offer the highest returns across all asset classes. Mandating a minimum investment in government securities will lower investor returns from funds, making it one of the least-liked insurance products.

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As part of ULIPs, insurance companies offer four main fund options — debt, balanced, secured and equity funds. But if each fund has to comply with the mandated 25% investment in government securities, there will be no equity funds. As a result, a lot of investors will be dissuaded from buying ULIPs and insurers will find it tough to sell the product to investors wanting 100% equity exposure. Currently, insurance companies invest in approved securities, including bonds that are rated ‘AA’ and higher bonds that are secured by assets. On the equity side, ULIPs can invest in companies having a track record of paying 4%-5% dividend for at least nine years. By mandating 25% exposure to government securities, limited investment options will be available.

Fund Name NAV sort icon AUM sort icon 5 Yr Returns sort icon 10 Yr Returns sort icon
SBI Life Balanced Fund ₹70.14 ₹21160 Cr 7.56% 9.64%
SBI Life Bond Fund ₹50.57 ₹16781 Cr 5.72% 6.82%
SBI Life Equity Fund ₹183.63 ₹81025 Cr 9.36% 11.4%
SBI Life Equity Optimiser Fund ₹51.04 ₹2622 Cr 9.91% 11.2%
SBI Life Growth Fund ₹89.28 ₹2913 Cr 8.85% 11.02%
SBI Life Money Market Fund ₹36.66 ₹444 Cr 5.76% 6.01%
SBI Life Top 300 Fund ₹53.52 ₹1981 Cr 9.34% 11.99%
SBI Life Pure Fund ₹24.72 ₹1150 Cr 8.57% -
SBI Life Bond Optimiser Fund ₹22.11 ₹3238 Cr 7.27% -
SBI Life Balanced Pension ₹70.61 ₹805 Cr 8.24% 10.52%
SBI Life Bond Pension ₹44.93 ₹530 Cr 5.56% 7.09%
SBI Life Equity Pension ₹69.38 ₹11842 Cr 10.42% 12.3%
SBI Life Growth Pension ₹70.05 ₹632 Cr 9.52% 11.54%
SBI Life Money Market Pension ₹33.88 ₹142 Cr 5.7% 5.99%
SBI Life Equity Optimiser Pension ₹54.7 ₹976 Cr 9.86% 12.04%
SBI Life Top 300 Pension ₹52.17 ₹710 Cr 9.45% 12.09%
SBI Life Midcap Fund ₹45.31 ₹55035 Cr 17.14% -
SBI Life Corporate Bond Fund ₹16.42 ₹1025 Cr 5.67% -
SBI Life Equity Elite II ₹48.35 ₹12182 Cr 8.84% 11.01%
SBI Life Index ₹44.15 ₹102 Cr 9.66% 11.5%
SBI Life Index Pension ₹46.08 ₹27 Cr 9.78% 11.54%
SBI Life Discontinued Policy Fund ₹25.42 ₹10703 Cr 5.74% 6.07%
SBI Life Equity Elite ₹82.32 ₹13 Cr 11.74% 13.85%
SBI Life P-E Managed ₹36.63 ₹215 Cr 8.45% 9.75%
SBI Life Guaranteed Pension GPF070211 ₹26.54 ₹2 Cr 5.26% 6.68%
SBI Life Bond Pension II ₹23.44 ₹29088 Cr 5.48% 6.45%
SBI Life Equity Pension II ₹38.81 ₹12141 Cr 9.44% 11.88%
SBI Life Money Market Pension II ₹20.7 ₹1532 Cr 5.47% 5.73%
SBI Life Discontinue Pension Fund ₹21.46 ₹6775 Cr 5.74% -
SBI Life Group Growth Plus Fund ₹54.99 ₹3 Cr 7.93% -
SBI Life Group Debt Plus Fund ₹40.05 ₹113 Cr 6.43% -
SBI Life Group Balance Plus Fund ₹47.44 ₹11 Cr 7.24% -
SBI Life Group Balance Plus Fund II ₹26 ₹869 Cr 7.22% -
SBI Life Group Debt Plus Fund II ₹26.02 ₹281 Cr 6.57% -
SBI Life Group Growth Plus Fund II ₹25.8 ₹237 Cr 8.15% -
SBI Life Group Short Term Plus Fund II ₹21.54 ₹19 Cr 6.05% -
SBI Life Group Money Market Plus Fund ₹12.47 ₹2 Cr 0.99% -
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Conclusion

The IRDAI proposal has been drafted keeping in mind the interests of the government and not the consumer. The mandatory 25% investment in government securities does limit the risk but this may have other repercussions as many policyholders who are looking for pure risk cover may not find it attractive anymore. If a majority of policyholders want to invest in equity funds, fund managers won’t be able to comply with their wishes. The proposal is, therefore, going to push people away from ULIPs toward investment instruments that offer pure equity fund option or higher returns. Ideally, a customer should be allowed to make an investment in funds of their choice, a practice followed around the globe. Forcing companies to invest money in certain types of securities is not a good idea. Further, when there are traditional plans that offer the guaranteed return option, there is no need to have a separate 25% investment clause.

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In order to create finance long-term projects, the government can alternately directly approach the people by listing government bonds on the stock exchange. The move will garner lots of cheer as the investors will be in control of their money and will choose to invest, while The best SIP plan balances risk and long-term returns. Plus, ULIPs will remain undisturbed and continue to be attractive.

˜The insurers/plans mentioned are arranged in order of highest to lowest first year premium (sum of individual single premium and individual non-single premium) offered by Policybazaar’s insurer partners offering life insurance investment plans on our platform, as per ‘first year premium of life insurers as at 31.03.2025 report’ published by IRDAI. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. For complete list of insurers in India refer to the IRDAI website www.irdai.gov.in
*All savings are provided by the insurer as per the IRDAI approved insurance plan.
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
+Returns Since Inception of LIC Growth Fund
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
++Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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