Zerodha's Nithin Kamath advises against ULIPs as investment option
Nithin Kamath, the founder of Zerodha, has expressed skepticism about the effectiveness of Unit-Linked Insurance Plans (ULIPs) as an investment strategy. He suggests that these financial products, which blend insurance and investment benefits, may not be the most beneficial choice for investors seeking to balance their portfolios. A portion of the premium paid for a ULIP, is allocated toward life insurance coverage while the remainder is invested in equity or debt instruments, based on an individual's risk tolerance.
Kamath highlights drawbacks of ULIPs
Kamath pointed out that the returns from ULIPs are directly tied to the performance of their underlying investments. He noted an increase in ULIP sales over the past year, attributing this trend to banks' high commission rates on these products. However, he cautioned that despite their promise of offering both investment and insurance benefits, ULIPs often fall short due to high commissions and insufficient insurance coverage.
Advocating for separating insurance and investments
Kamath recommends separating insurance and investment strategies. He suggests investing in direct mutual funds and purchasing a term insurance policy as a more cost-effective alternative. The Zerodha founder claims many people are unaware they own a ULIP or similar product due to its complex nature.
Mutual funds gain popularity among retail investors
In recent years, mutual funds have seen a surge in popularity among retail investors. This trend is evident in the fund flows for the fiscal year 2023-24, where mutual funds contributed ₹1.84 lakh crore to the equity market capitalization, a significant increase from ₹69,000 crore in FY17. According to RBI data, investments in mutual funds accounted for 2.56% of financial assets in FY 2019-20 and rose to 6.05% by FY 2022-23.
