We have seen star rating in mutual fund schemes. However recently, Morningstar website started giving Star Ratings for Unit Linked Insurance Plan (ULIP) funds too. It rates ULIP funds with 1 star (lowest) to 5 star (highest). What do these star ratings in ULIP indicate? What are the key points in this Star Rating methodology? How investors would benefit from Star rating in such insurance products?
What are Star Ratings in ULIPs?
Morningstar website started providing star ratings for ULIP funds. The star rating would be 1 star (Lowest) to 5 Star (Highest). These star ratings are given in terms of how such fund is delivering returns compared to its peers after adjusting in risk or volatility. Star Rating is based on risk adjusted returns. These ratings are applied to all funds which have generated over last 3 years. It has given differential treatment for funds which are between 5 to 10 years. Funds with over 10 years performance are given higher weightage.
Star Rating in ULIP Funds – What does it indicate?
- Investors can use this data to compare performance of various ULIP Funds.
- Returns are approx. and computed to most extent.
- One can use this data as starting point in assessing how various ULIP funds are performing compared to peers in different segments like equity, equity with debt and debt.
- Let me explain with one live example. All Edelweiss ULIP funds are 5 Star rated as per Morningstar. Edelweiss Tokio Life has launched ULIP named Wealth Accumulation Accelerated Cover ULIP plan which invests in Equity large cap fund, Equity Top 250 fund, Bond Fund, Money market fund etc., Now if you would like to know the performance of these ULIP funds, you can check on Morningstar website. This way you can compare its returns with its peers and take a wise decision of investing in such ULIP Plans.
- Another point to note is if all the funds under a insurance company are 5 star rated, it indicates they are consistent performers which gives confidence to investors. You can also switch between the funds under such insurance company as it does not matter as all are 5 star. Classific example is, HDFC Life ULIP funds where only large cap are rated as 5-Star. In such case you cannot switch to another fund as there are no other 5-star rated funds under this. It is possible to switch funds in Edelweiss Tokio Life ULIP Funds as all funds are 5-Star rated. So, you have a choice of investing in such ULIP funds.
Conclusion: Many investors have been looking for such star rating for unit linked insurance plans for long time. You can consider these ratings as starting point, compare the returns with its peers, evaluate the funds objectives and then decide whether such funds are suitable to you or not.
Readers, what do you feel about these Star Ratings of ULIP funds from Morningstar? Do you feel this is innovative approach on assessing the performance of ULIP Funds?
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Star Rating for ULIP Funds
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