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HDFC Bank Research 3 December 2019

HDFC Life Sanchay Par Advantage


(A Non-Linked Participating Life Insurance Plan)
Why should someone buy Sanchay Par Advantage?

Benefits of HDFC Life Sanchay Par Advantage:

 Survival Benefit payouts help to create an alternate source of income


 Flexibility to defer benefit pay outs can be used with future financial needs in perspective
 The plan can be used as a tool to create a legacy for the next generation
 The plan can be used to avail regular income for whole of life (till age 100 years)
 Protect the family against financial distress in case of unfortunate death
 Provides Tax Free Income^
^As per existing tax laws

Suitable for all Life Stages


 Regular Income can be used to pay for education
 Regular Income to support college expenses and early career
 Build a corpus for your dream vacation (Accrual of payouts)
 Income to reduce the burden of EMIs
 Protection against unexpected rise in expenditure –family expenses, medical exigencies
 Regular Income to maintain post retirement lifestyle

Participating products
The benefits of participating policies are a sum of guaranteed* benefits and discretionary (non-guaranteed) benefits, the latter depending
on the bonuses declared.
The ‘bonus’ declared is based on the actual experience of the portfolio, the most important being the investment returns earned. As the
policy ‘participate’ in the experience of the portfolio, this product is called as participating product.
The bonuses are of two types:
 Regular bonuses which are declared during the tenure of the policy. These bonuses can either accrue under the policy and are
paid in the event of a claim by death, surrender or maturity or be paid as cash bonuses immediately on declaration
 Terminal (final) bonus which may be paid when a policy results in claim by maturity/death/surrender

How the premiums are invested


The premiums paid by the policyholder, after deduction for expenses including commission, are invested in a combination of debt and
equities. The proportion of debt would depend on the amount of guaranteed* benefits and the duration at which the guaranteed* benefit is
payable; with higher proportion of guarantees* and closer to the maturity date implying a higher proportion of debt investments and vice
versa. Hence, the proportion of debt and equities would vary between different policies and also for the same policy at different times.
How does a Participating policy differ from a Unit-linked (UL) Policy
The premiums paid under a participating policy are invested in similar asset classes as in a Unit-linked policy, but there are a few
differences between the two product structures, the key one being that the policyholder returns in a participating policy in any given year is
not directly linked to the returns of the Par fund for that year. Other differences include:
 The asset allocation in a unit linked policy is decided by the policyholder. Portfolio construction in a Unit-linked policy is dictated
by the mandate for the fund (usually benchmarked to an index) while in a participating policy, the investment is decided on a
portfolio basis taking into account the extent of guaranteed* and discretionary benefits for policyholders.
 The policyholder return on a UL policy is directly calculated from the daily NAVs related to the investment performance on a daily
basis.
 The policyholder returns in the Par fund reflect the total asset returns over the period of the policy term. Unlike a UL fund, there
are no NAV calculations or declarations on a regular basis, nor is the portfolio disclosed in public domain.

Note: Please find Disclaimer on the last page.


Source for entire data and product information stated above is from HDFC Life Insurance Company Limited. For further detail on the product, please refer to the product note of the Insurance Company.
* Guarantee by HDFC Life Insurance Company Limited.
HDFC Bank Research 3 December 2019

 In the Par portfolio, the bonuses are ‘smoothed’ over years and between different policies in the same portfolio to minimize
volatility of returns. Over the term of the policies, the total policyholder returns is expected to reflect the total asset returns on the
invested portion of the premiums over the period.
How bonus rates are declared
HDFC Life’s philosophy is to base a) the regular bonuses on the regular investment income earned in the portfolio like the coupons,
dividends and b) the terminal bonus would be based on capital gains, equity returns etc. The bonuses would be ‘smoothed’ over the years
implying that in years of very good returns, some of the surplus would be held back in the portfolio to be used in years when the returns
are not good. This is to ensure that the bonus rates and hence the returns are not very volatile year-on-year.
As the investment in equities is expected to generate higher (as compared to risk free returns) returns over the medium to long term, the
insurance company intends to distribute the higher expected returns on equity as well as any undistributed surplus from past years in the
form of ‘terminal bonus’ which would be payable in the event of the policy resulting in a claim by maturity or early surrender/death.

Investment Management

Debt Investments
The debt investments are structured based on the regulatory requirements of specified allocation in government securities and high-
quality corporate bonds, including exposures in housing and infrastructure companies. The maturity structure of the debt portfolio
is matched to the maturity profile of the liabilities, to reduce the interest rate risk in the portfolio. Since the maturities of the debt
investments are matched to the liabilities, the securities are usually held till their respective maturities. The portfolio objective is to
achieve a close matching of the assets and liabilities’ cash flows. There are no interest rate calls / duration calls in the Par fund.
The Par portfolios invest in corporate bonds as well. Since the debt portfolio is used to ensure the ability to meet the guaranteed*
liabilities as well as the regular bonus declarations, the credit risk in the portfolio is kept low. Moreover, the policy terms in the Par
funds are long dated. Hence, the corporate exposures in the Par funds are maintained only in the blue chip, ‘AAA’ rated PSU
entities.
The returns from the debt investments reflect the yield levels prevailing during the term of the policies.

Equities
The equity allocation in the Participating fund is expected to generate higher investment returns, which can then be used for
declaring the discretionary benefits in the form of additional bonuses and terminal bonuses. The current equity allocation for the in-
force participating policies is around 25% and it has been increasing over the last few years. The allocation was about 13%, 5 years
ago.

Past Investment performance


The equity investment in listed securities follows a process similar to the management of HDFC Life’s Unit linked ‘Blue Chip
Fund’. The equity returns in the existing Par portfolio are broadly in line with the returns in HDFC Life’s ‘Blue Chip Fund’,
grossed up for the FMC. (The NAV based returns of the ‘Blue Chip Fund’ are calculated after deducting FMC of 135 bps plus 18%
GST on the FMC).

Indicative Exposure to Debt & Equity Investments. (as provided by HDFC Life Insurance Company Limited)

Proposed
Asset Category
Allocation
Money Market Instruments
~3%
Public Deposits
Govt. Securities ~50%
Corporate Bonds ~20%-25%
Equity ~25%-30%

Note: Please find Disclaimer on the last page.


Source for entire data and product information stated above is from HDFC Life Insurance Company Limited. For further detail on the product, please refer to the product note of the Insurance Company.
* Guarantee by HDFC Life Insurance Company Limited.
HDFC Bank Research 3 December 2019

Key Features

Plan Option 1 – Deferred Income

Note: Please find Disclaimer on the last page.


Source for entire data and product information stated above is from HDFC Life Insurance Company Limited. For further detail on the product, please refer to the product note of the Insurance Company.
* Guarantee by HDFC Life Insurance Company Limited.
HDFC Bank Research 3 December 2019

Benefits –Deferred Income

Survival Benefit:
 Guaranteed* Income payable for 25 years as
Guaranteed* Income = Guaranteed* Income Rate x Annualized Premium
 Cash Bonus payable at chosen frequency every policy year

Maturity Benefit:
Sum Assured on Maturity plus Accrued Survival Benefit (if not paid earlier) plus Interim Survival Benefit plus Terminal Bonus
Where, Sum Assured on Maturity is equal to sum of Annualized premiums payable under the policy

Death Benefit:
Sum Assured on Death plus Accrued Survival Benefit (if not paid earlier) plus Interim Survival Benefit plus Terminal Bonus

Sum Assured on Death is the highest of


 10 times the Annualized Premium or
 Sum Assured on Maturity or
 Death Multiple x Annualized Premium

The minimum Death Benefit shall be 105% of Total Premiums Paid as on date of death.

Premium excluding UW extra premiums, modal loadings, taxes and rider premiums, if any

Plan Option 2 – Immediate Income

Note: Please find Disclaimer on the last page.


Source for entire data and product information stated above is from HDFC Life Insurance Company Limited. For further detail on the product, please refer to the product note of the Insurance Company.
* Guarantee by HDFC Life Insurance Company Limited.
HDFC Bank Research 3 December 2019

Benefits –Immediate Income

Survival Benefit: Cash Bonus payable at chosen frequency every policy year

Maturity Benefit:
Sum Assured on Maturity plus Accrued Cash Bonuses (if not paid earlier) plus Interim Survival Benefit plus Terminal Bonus
Where, Sum Assured on Maturity is equal to sum of Annualized premiums payable under the policy

Death Benefit: Sum Assured on Death plus Accrued Cash Bonuses (if not paid earlier) plus Interim Survival Benefit plus Terminal Bonus

Sum Assured on Death is the highest of


 10 times the Annualized Premium or
 Sum Assured on Maturity or
 Death Multiple x Annualized Premium

The minimum Death Benefit shall be 105% of Total Premiums Paid as on date of death.

Premium excluding UW extra premiums, modal loadings, taxes and rider premiums, if any

Plan Eligibility

Note: Please find Disclaimer on the last page.


Source for entire data and product information stated above is from HDFC Life Insurance Company Limited. For further detail on the product, please refer to the product note of the Insurance Company.
* Guarantee by HDFC Life Insurance Company Limited.
HDFC Bank Research 3 December 2019
HDFC Life Sanchay Par Advantage (Investment Strategy)
Type & Investment Objective Fund Quarterly Performance (+/-) Absolute Returns (%) v/s Benchmark (%)
The benefits of participating policies are a sum of guaranteed* benefits and discretionary (non-
guaranteed) benefits, the latter depending on the bonuses declared. The ‘bonus’ declared is based on
the actual experience of the portfolio, the most important being the investment returns earned. As the
policies ‘participate’ in the experience of the portfolio, these products are called as participating
products. In the Par portfolio, the bonuses are ‘smoothed’ over years and between different policies
in the same portfolio to minimize volatility of returns. Over the term of the policies, the total
policyholder returns is expected to reflect the total asset returns on the invested portion of the
premiums over the period.
Fund Characteristics
Debt Investments - The debt investments are structured based on the regulatory requirements of
specified allocation in government securities and high quality corporate bonds, including exposures
in housing and infrastructure companies. The maturity structure of the debt portfolio is matched to
the maturity profile of the liabilities, to reduce the interest rate risk in the portfolio. Hence, the
securities are usually held till their respective maturities. The portfolio objective is to achieve a close Top Holdings ^
matching of the assets and liabilities’ cash flows. There are no interest rate calls / duration calls in
the Par fund. The Par portfolios invest in corporate bonds as well. Since the debt portfolio is used to Company (%) Fund
ensure the ability to meet the guaranteed* liabilities as well as the regular bonus declarations, the HDFC Bank Ltd 9.38%
credit risk in the portfolio is kept low. Moreover, the policy terms in the Par funds are long dated. Reliance Industries Ltd 8.82%
Hence, the corporate exposures in the Par funds are maintained only in the blue chip, ‘AAA’ rated ICICI Bank Limited 5.91%
PSU entities. The returns from the debt investments reflect the yield levels prevailing during the Infosys Limited 5.04%
term of the policies.
Equities - The equity allocation in the Participating fund is expected to generate higher investment ITC Limited 4.52%
returns, which can then be used for declaring the discretionary benefits in the form of additional Total 33.67%
bonuses and terminal bonuses. The current equity allocation for the in-force participating policies is
around 25% and it has been increasing over the last few years. The allocation was about 13%, 5
years ago. The exposures to stocks and sectors are similar to the portfolio of HDFC Life’s Unit
Sector (%) Fund
linked ‘Blue Chip Fund#’. The equity investment aims to provide medium to long term capital
appreciation by investing in a portfolio of pre-dominantly large cap companies which can perform Financial Services 34.49%
through economic and market cycles. The equity portion in the Par Fund is benchmarked to the Energy 13.22%
BSE100 Index. Consumer Goods 13.18%
Fund Commentary IT 10.20%
 As per the fund manager, post the cut in Corporate tax rates by the government, market Automobile 6.20%
participants are expecting further actions including rationalization of Dividend Distribution Total 77.29%
Tax (DDT), Long Term Capital Gains Tax (LTCG) and Personal income tax, fiscal incentives
to prop up the real estate demand and front loading of infrastructure investments. In the
meanwhile, Q2FY20 results have been more or less in line with the subdued expectations.
While topline performance has been muted, the EBITDA margins of the companies has Portfolio Composition (%) ^
surprised on the upside for most sectors including Autos, Banks, IT and FMCG. Net profit of
the companies witnessed improvement mainly on the back of cut in corporate tax rate.
 As per the fund manager, equity markets are currently trading at around 19 times of FY21 (e)
which is a little above the long term average. However, from a medium to long term point of
view, as the benefits of government reforms start percolating down to the real economy,
equity markets may perform better tracking improvement in growth indicators.
 On the fixed income market, bond yield traded in a very narrow range for last 2 months, with
no triggers for a decisive move in either direction. The government issued a new 10-year bond
at a coupon of 6.45% in October.
 As per the fund manager, benign inflation and subdued growth, both globally and
domestically, and benign crude oil prices continue to support for lower bond yields. However,
the concern over the government’s fiscal balance may negate these positive factors. As per the
fund manager, the short end of the curve is expected to be anchored close to the repo rate as
RBI is likely to cut rates further and maintain surplus liquidity in the system, while the long Note: All stocks below lowest free float market capitalisation in BSE100 considered as
end of the curve may rise further or stay flat. Mid-Small Cap.
 The equity investments of the fund has highest exposure to Financial Services sector. The
other top sectoral holdings in the portfolio are Energy, Consumer Goods, IT and Auto.
Currently, the equity portfolio of the fund has around 81% exposure in large caps, around 1%
in mid caps, around 10% in ETFs & Preferece Shares and around 8% exposure in Debt & Trailing Returns (%) ^
Cash. Period Fund S&P BSE BSE 100
Additional Scheme Features 6 Months 2.69% 1.10%
Benchmark S&P BSE BSE 100 1 Year 14.52% 12.54%
Inception Date of HDFC Life Blue 2 Years 6.73% 5.52%
Chip Fund 5th January 2010 3 Years 10.69% 10.37%
Corpus Size (in Crs) Rs.5642 (Corpus of the HDFC Life Blue Chip Fund) 5 Years 9.15% 7.43%
Since Inception 9.28% 8.37%
Name of the Fund Manager:
Note: ^ Data as on 31 October 2019. Returns are Absolute for <= 1 year and
For HDFC Life Blue-Chip Fund: Nishit Dholakia Compounded Annualised for > 1 Year
For HDFC Life Sanchay Par Advantage: Harish Subramanian and Abhishek Agarwal
# Portfolio of the equity portion will be similar to HDFC Life Blue Chip Fund. All the above data pertaining to equity performance and portfolio is that of HDFC Life Blue Chip Fund.

Note: Please find Disclaimer on the last page.


Source for entire data and product information stated above is from HDFC Life Insurance Company Limited. For further detail on the product, please refer to the product note of the Insurance Company.
* Guarantee by HDFC Life Insurance Company Limited.
HDFC Bank Research 3 December 2019

Disclaimer:
HDFC Bank Limited ("HDFC Bank") is registered with Insurance Regulatory & Development Authority of India (IRDAI) as a Composite Corporate Agent, IRDAI Registration No. CA0010 for distribution of
Insurance Products. HDFC Bank currently has arrangement with HDFC Life Insurance Co. Ltd, Tata AIA Life Insurance Co. Ltd., and Aditya Birla Sun Life Insurance Co. Ltd for distribution of Life
Insurance products. The contract of insurance is between the Insurance Company and the insured only, and not between HDFC Bank and the insured. HDFC Bank is not responsible or liable for performance
of any obligations under the contract of insurance. Insurance is sold as a stand-alone product and not linked to any of the Banking products. Participation in Insurance is purely on a voluntary basis. Purchase of
Insurance is not a pre-condition of availing any of the banking products / services. Details related to product features and fund performance are based on the input received from insurance companies. HDFC
Bank is not responsible or liable for any omission or commission in the information shared. For more details on risk factors, product details, terms and conditions and exclusions please read the relevant
product brochure carefully before conclusion of sale.

Note: Please find Disclaimer on the last page.


Source for entire data and product information stated above is from HDFC Life Insurance Company Limited. For further detail on the product, please refer to the product note of the Insurance Company.
* Guarantee by HDFC Life Insurance Company Limited.

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