Tata AIA launches Sector Leaders index funds: Should you invest?
What's the story
Tata AIA Life Insurance has launched two new funds, the Tata AIA Sector Leaders Index Fund and the Tata AIA Sector Leaders Index Pension Fund. The schemes will invest in India's largest companies across sectors, as per the BSE India Sector Leaders Customized Index. The initial price is set at ₹10 per unit during the New Fund Offer (NFO) period, which ends on September 22.
Strategy
Fund structure and tax implications
The new funds will primarily invest (80-100%) in equities and equity-related instruments, with up to 20% in cash and money market instruments. The index fund is available via unit-linked insurance plans (ULIPs), while the pension fund version is linked to ULIP-based retirement solutions. From September 22, fund charges under these products won't attract GST, as per the new tax rules.
Historical returns
Potential benefits of investing in sector leaders
The funds seek to offer diversified equity exposure by investing in sector leaders. This strategy minimizes concentration risk while gaining from the performance of large and established businesses. Tata AIA's other equity-oriented funds have also outperformed benchmarks in recent years, with annualized returns between 27% and 29% over a five-year period ending in a recent past year. However, it's important to note that past performance does not guarantee future results.
Investment advice
ULIPs provide insurance cover, but returns are market-linked
The new funds offer a combination of equity investment and life insurance cover, due to their ULIP structure. However, investors should keep in mind that returns are market-linked and can be volatile. Financial advisers suggest aligning such products with long-term objectives like retirement planning instead of short-term gains.