Zerodha’s Nithin Kamath flags ULIP, endowment traps; says health policies remain complex

Nithin Kamath, the chief executive officer of Zerodha, has highlighted a persistent trend of personal finance errors among Indian consumers, specifically the continued adoption of Unit Linked Insurance Plans (ULIPs) and endowment plans. Speaking on May 9, 2026, Kamath noted that these financial products remain popular despite the widespread availability of information regarding their inefficiency.

The primary critique centers on the combination of insurance and investment within a single financial product. Kamath argued that bundling these two distinct needs—risk cover and wealth creation—is a fundamental mistake in financial planning.

According to the reporting by the Economic Times, Kamath observed a lack of innovation in these financial missteps, suggesting that investors are repeating the same errors even as digital access to financial literacy increases.

The Mechanics of Bundled Products

ULIPs and endowment plans are structured to provide a life insurance cover while simultaneously investing a portion of the premium into various assets, such as equity or debt. In an endowment plan, the investment is typically conservative, while ULIPs allow the policyholder to choose the investment fund.

The core issue identified by Kamath is that this hybrid approach often leads to suboptimal outcomes in both categories. The insurance coverage provided in these plans is typically far lower than what a consumer could obtain through a pure term insurance policy for the same premium cost.

Simultaneously, the investment returns on these bundled products are often eroded by high commission structures and management fees, which can make them less effective than separate investments in mutual funds or direct equities.

Complexity in Health Insurance vs. Investment Traps

Kamath drew a distinction between the pitfalls of bundled investment plans and the challenges associated with health insurance. He acknowledged that health insurance policies are inherently complex, often containing intricate clauses regarding co-payments, waiting periods and exclusions that make them difficult for the average consumer to scrutinize.

However, he argued that the mathematical structure of ULIPs and endowment plans is much simpler to analyze. Because the trade-off between the cost of insurance and the return on investment is transparent upon calculation, Kamath stated that poor choices in these categories are harder to excuse.

The Role of Financial Literacy and Distribution

The persistence of these products in the Indian market is often linked to the traditional distribution model, where insurance agents are incentivized by high commissions to sell bundled products over simpler, cheaper alternatives like term insurance.

Historically, many Indian investors have used these plans primarily for tax savings under specific sections of the Income Tax Act. This tax-centric approach often takes precedence over the actual financial efficiency of the product.

Zerodha, which operates as a discount brokerage, has consistently advocated for a transparent, low-cost approach to investing. The company’s philosophy emphasizes the separation of insurance—which is intended for risk mitigation—and investing, which is intended for wealth growth.

Kamath’s observations suggest that while the tools for financial awareness are now available to the public, there remains a significant gap in the application of that knowledge during the purchasing process.

Market Implications

The critique of these products comes at a time when the Indian retail investment landscape is shifting toward direct plans and DIY (do-it-yourself) investing. As more users move away from traditional intermediaries, the scrutiny of legacy insurance-investment products has increased.

Financial analysts note that the trend toward transparency in the brokerage industry, led by firms like Zerodha, is putting pressure on traditional insurance providers to offer more straightforward products with lower hidden costs.