ULIPS - mixing ignorance with greed

By the amount of bad press ULIPS receive, you'd be surprised if they sell at all. But they don't just sell, they sell plenty. In fact, the total renewal premium paid between April -September 2009 amount to almost 26,000 crore .

So why do ULIPS sell so much in spite of being so universally reviled? I was wondering about this for some time and I feel the answer lies in the heady combination of greed and ignorance on the part of the investors. (And a lot of misselling - as the critics will add.)

The reasoning is simple. Every investor wants to earn the maximum amount of returns on his investment. And when they look at the numbers, they realize that equity beats every type of investment option. But the catch is that investing in equity is not easy. Many of them don't know how to begin investing in equity - the whole process of opening a demat account, getting in touch with a broker, or registering with an online site is too complex and too cumbersome. Plus, understanding how equity works is not simple either. Of course, they could invest in a good mutual fund; but surprisingly, many are not aware of how mutual funds work, either.

Enter insurance. Insurance is something that almost every Indian is familiar with. So when the investor is sold Equity + Insurance in the garb of ULIPS, there's no reason why they shouldn't fall for it. The numbers look so good! Plus everyone who reads newspapers or watches TV knows that one can make money in equity. So why not invest in ULIPS!

The huge amount of monies being invested prove that these investors do not lack money. What they lack is knowledge and a bit of greed. I say a bit of greed, because it's not wrong to expect the best returns for your money. But, expecting to earn the best returns without investing any effort on knowing whether you're doing the right thing or not is surely being greedy.

So as long as investors continue to remain ignorant and greedy, ULIPS will continue to outshine and outsell all other investment instruments - whatever the critics say, no matter how much bad press they receive!