Where the package is the value, ULIPs vs. Mutual Funds

There are many products in the world where the label or the packaging is what imparts value. The product in itself constitutes a fraction of the overall value derived by the consumer.

Take for example a Rolex watch, a Louis Vitton bag or an expensive bottle of wine. It is what the consumer percieves that is important as opposed to what is rational. If consumers were rational, they would probably be willing to pay only a fraction of the current price.

The case of Unit Linked Insurance Plans (ULIPs) vs. Mutual Funds is similar. While the former is an expensive vehicle to invest through, the latter is the best value rationally. However ironically it may be the case that investors derive more “satisfaction” in ULIPs as compared to Mutual Funds. The Mutual Funds do not promise a child’s education or a comfortable retirement or the highest NAV. Also due to the fact that most funds are open ended and periodically ranked according to short term performance, it encourages short term behaviour in distributors and investors. Hence the entire focus of investors is diverted from long term investment returns from Mutual Funds to short term volatility of the markets.

What is probably needed in Mutual Funds is a move towards interval schemes with Systematic Investment Plans and a defined investment horizon. These schemes would have an asset allocation which would be determined based on the target retirement date or the target education goals (the defined investment horizon). The investor would be assured that a systematic asset allocation will take away undue volatility and help in meeting life stage financial goals and at the same time benefit from the low cost structure of Mutual Funds.

It is probably a time for Mutual Funds and the regulators to understand the art of packaging!


  1. Hi, Are there posts available from before July 2008. Your writings make a great read and resonate well with sound investing principles. I would certainly like to read your blog in entirety. Have read all posts after July 2008 and was looking for earlier articles.


  2. hi i am a new user to read blogs and i am learning how to invest and how to understand stock market. Can you please guide me what should i do?
    Moreover i am learning Behavioural Finance can you suggest me some good links or blogs for the same
    thanks & regards

  3. i am a forces guy who retired recently and invested in 40% in mutual funds and 60% in FDs since i am 48 years old. Of mutual funds, 20% is in FT balanced dividend direct, 10% in FT blue chip dividend direct, 9% in HDFC TOP 200 DIVIDEND DIRECT and 1%( just started) in PPFAS.

    of the 60% others, 15% is in PPF, 35% is in FDs maturity.

    since i am working and getting pension i have the capability to invest roughly 1 lac every month over and above my expenses, since i have no liability at this stage.
    Should i invest in PPFAS henceforth. Should i transfer dividend options to PPFAS which are more than a year. Should i covert some FDs into PPFAS. pl advise since I have a lot of faith in your sceme due to fauji recommendations.

    pl advise

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