MFs can not perform better than the funds under ULIPs

Friends,

I come across very many people who have leanings towards MFs. I find it difficult to explain to them that the MFs can not perform better than the funds under ULIPs because of variety of reasons.

Past and recent past experience has shown beyond doubt that the MFs have done poorly against the Bench-Mark indices while the funds under ULIPs have exceeded the returns on Bench-Mark indices. The 'growth fund ' of HDFC SLIC' has beaten the bench-mark index by a margin of over 4% over the last more than five years ie since inception.

MFs have their assets under management divided in to two many pockets and remain under pressure of redemption all the time. They therefore do not deploy entire fund available. They have higher fund management charges to take care and can not have very long term view. The ULIPs have no such problem and have continuous fund flow and can afford to have longer term view and have predetermined points of exit as per the policy terms already known.

Why then the MFs should be there at all, is the natural question that comes to mind. In fact mutual funds too have a role to play and that is in the area of sector specific funds. Those of the investors who have identified a certain sector that according to them would be giving better returns can use MF route more conveniently than do their own direct investment. Where however , an investor has interest in a particular company or set of companies, then of course the direct investing is the answer and non other pocket

I think I have given you good idea as how to use the different options available to take advantage in given situation. In this light regular savings should flow only in an Unit Linked Plan of the insurance companies, which are now having certain very valuable advantages on account of their current features like of having equity flavoured funds and bonds and debentures oriented funds besides giving the invaluable facility of allowing the policy holder to switch between the funds according to need of the hour and personal leaning. The perfect liquidity in respect of the funds is also possible after a three year period. Needless to say that in policies with life risk cover , no taxes on the gains, growth or interest earned are payable or applicable as per the section 10(10)D, before or after withdrawal. I have told only some of the advantages to keep this brief. Those interested are welcome to interact with me for more.

Hari Om

Krishna Kumar Khandelwal