While most guaranteed products from insurers give 4.5-5.5 per cent return, HDFC Life’s recently-launched Sanchay Plus promises 6.3 per cent return under two of its plans. Business Line spoke to Prasun Gajri, Chief Investment Officer, HDFC Life, to understand if there is risk attached to the returns promised and what IRDAI’s rule book says on guaranteed return products.

Sanchay Plus promises a return of 6.3 per cent. This is the highest among guaranteed products in town. How is this doable for you? Where are you investing the funds?

We typically invest in long-dated bonds that yield more than what the product guarantees.

As per regulations, how much can you invest in debt and equity?

Guaranteed products can be offered as a ‘life’ product — a conventional product with a life cover, or as a ‘pension’ product — a conventional product without any life cover, or as a ‘unit linked’ product. The regulations for investments in these categories vary slightly.

The life products need to invest at least 50 per cent in government debt, with the rest in other bonds and/or equity. The maximum equity exposure that can be taken is 35 per cent of the fund. Pension products need to invest at least 40 per cent of the fund in government debt and the balance in other bonds and/or equity. The maximum equity exposure that can be taken is 60 per cent of the fund. There are no regulatory restrictions on the debt/equity proportions in the unit linked products.

The funds can invest any proportion — depending on the fund’s mandate filed by the insurance company — in debt or equity.

Are your expenses lower than others? Will you be taking more aggressive investment calls to help you reach the 6.3 per cent return?

HDFC Life always endeavours to minimise expenses to provide more value to the policyholders.

Te funds are invested in safe bonds — Government securities mainly and some highly-rated corporate bonds. The choice of the maturities of the bonds is dictated by the company's asset-liability management policy. We aim to keep investment risks as low as possible and provide more value to policyholders.

Can there be a situation when you may not be able to pay the promised return? In such a case, what is the recourse available to policyholders?

HDFC Life is a listed company with regular disclosure of the financials. The company does not take any aggressive investment risks.

All liabilities are backed by adequate reserves in the form of safe assets. The company also maintains a healthy solvency ratio, well in excess of the regulatory requirement. We expect these practices to continue.

What are IRDAI’s regulations with respect to guaranteed products?

IRDAI does not have separate regulations for guaranteed products. The investment pattern depends on the category of the product — life, pension or unit linked.

However, the solvency ratio calculations are made more stringent for products with guarantees.

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