Nominee of bank account does not get succession rights

The Supreme Court (SC) has clarified the nominee of a depositor in a bank does not get ownership of the money in the account after death of the depositor. The nominee gets exclusive right to receive the money lying in the account. It gives him all the right of the depositor as far as the depositor's account is concerned, according to Section 45ZA of the Banking Regulation Act.

But the banking law is not concerned with the succession. The money in the account will form part of the estate of the deceased depositor and devolve according to the rules of succession. In this case, Ram Chander vs Devender Kumar, one son was the nominee of his mother. After her death, he claimed he was the owner of the money in the account, to exclusion of his brother. The same rule will apply to government savings and other investments.

Courtsy-BS Reporter / New Delhi November 15, 2010, 0:23 IST

Sebi suspects growing insider trading trend; ups vigil

NEW DELHI: Suspecting an uptick in the insider trading activities in the recent market rally, Sebi has enhanced its surveillance for possible violations of rules prohibiting trading based on prior and inside information.


The market watchdog has come across over two dozen instances of major suspected violations of insider trading norms during the recent rally to new record levels above 21,000 level and the subsequent correction last week, a senior official said.

While the suspicious trading activities have been noticed in the Sebi's routine surveillance of market activities, the regulator has decided to probe further into these cases and enhance its oversight for such matters going ahead, he added.

Major violations have been suspected in trading of 25-30 stocks over the past few weeks, the official said, adding that suspicious activities have been noticed in many other shares also but those are minor in terms of trade value and nature.

Insider trading relates to purchase or sale of shares by people having prior and privileged information about an upcoming development by virtue of they themselves or those related to them having holding a position in the company.

As per the Sebi's Prohibition of Insider Trading Regulations, an 'insider' is defined as any person "who is or was connected with the company or is deemed to have been connected with the company, and who is reasonably expected to have access to unpublished price sensitive information in respect of securities of a company, or who has received or has had access to such unpublished price sensitive information."

The stock market benchmark Sensex recently crossed 21,000 level to record its highest closing level at 21,004.96 points on November 5, after a sharp rally over the past few weeks, but has corrected about 900 points since then. The sentiments have been upbeat on the bourses, as also reflected in robust response to recent IPOs like Coal India.

Insider trading activities increase during market rally and an environment of improved investor sentiments makes it easier for insiders to make money on the bourses, experts said.

Sebi has systems in place to monitor unusual stock trends and suspicious activities are probed further for violations of norms including those regulating insider trading.

Recently, Sebi slapped a penalty of Rs two crores on Gujarat NRE Coke promoters A K Jagatramka and G L Jagatramka and their companies for indulging in insider trading. This is said to be the largest fine imposed this year for violations of insider trading norms. Later, the company said it would challenge the order.

"Many cases of insider trading do go undetected. Only a very small percentage of the total number of insider trading cases comes under regulatory scrutiny," said Sudip Bandyopadhyay, MD & CEO, Convexity Solutions and former CEO and MD of Anil Ambani group firm Reliance Money.

"It is difficult to specify the exact extent or percentage of insider trading. However, it does happen," he added.

Bandyopadhyay said that the regulations are in well in place, but the difficulty lies in implementing them and detecting the offence.

He advocated enhancement of powers of SEBI for seeking cooperation of other relevant regulatory authorities in matters of insider trading.

Another market observer Arun Kejriwal, director of KRIS, said that Sebi should keep a watch on dealing rooms of brokers and fund managers as also the companies' board meetings.

"Insider trading is rampant... It appears that almost all spiked movement in Indian markets can be linked to insider trading," he added.


Courtsy-http://economictimes.indiatimes.com/markets/regulation/Sebi-suspects-growing-insider-trading-trend-ups-vigil/articleshow/6923867.cms.

Diwali Time For Indian Bond Market

IRFC is hoping to attract retail investors with its forthcoming tax-free bond issue


Even as all eyes are turned on the booming stock markets, the last few months have seen a spate of bond offerings for risk-averse investors. Players like IDFC and L&T Infrastructure Finance have issued long-term infrastructure bonds to take advantage of Section 80CCF, which allows tax deduction on investments of up to Rs 20,000. Coming up next week is another kind of bond issue — tax-free bonds from Indian Railway Finance Corporation (IRFC).


The IRFC issue is aimed at big investors since the minimum investment — and the face value of each bond — is Rs 1 lakh. Indeed, the private placement issue is essentially targeted at corporations but IRFC is hoping to draw retail investors too.


IRFC will issue tax-free, secured, redeemable non-convertible Railway Bonds of five, seven and 10-year tenures. The interest rate is expected to be 6.05 per cent on the five-year bonds, 6.32 per cent for seven years, and 6.72 per cent for 10 years. The interest, completely tax-free, will be paid out twice a year. So, on the five-year bond, the equivalent taxable rate would be around 9 per cent.


The IRFC bonds are attractive for high net worth investors who’re looking to diversify and want a fixed rate of return with a regular income flow. “For retail investors, these bonds are as good as investing in government securities because they’re absolutely risk-free. And the return is a lot higher than the return on government securities. The tax-adjusted return is quite attractive too.


How do these bonds compare with other options? If you’re looking for a sovereign guarantee, the five-year RBI Relief Bonds carry an interest rate of 8 per cent. But the interest income is taxable. Banks like State Bank of India are offering five-year fixed deposits at 7.5 per cent, though the interest income is taxable and tax is deducted at source.


However ,the big ticket size of the IRFC bonds means that their retail reach will be limited.These are not classified for 80CCF exemption so for retail investors, it doesn’t make sense. Also, tradability may be an issue because if you want to sell just two-three bonds, you may not get a buyer easily.


In comparison, take a long-term infrastructure bond issue like the one from L&T Finance, which offers 7.5 per cent interest on its 10-year bonds with a buyback option after five years. The big kicker here is the Rs 6,000 tax saving (for the highest tax slab) on an investment of Rs 20,000.


If you’re a conservative investor who wants only risk-free products, infrastructure bonds are a brilliant idea. For big investors, the IRFC bond may give better returns as tax deduction is limited to investments of Rs 20,000.


More infrastructure bond issues are expected before the close of the financial year. Non-convertible debenture issues are in the offing too.

Cheap credit card at India & Some preventive measure

Recently, I took my second credit card. The first one I was using since a long. My bank told me this is very convenient and cheap. I tried to found the reality through my own recearch. What I found and what I am realising are just hear in a brief.

credit cards are available aplenty everywhere now a days and with every major banking firm, everyone has an appetite for one. The cash-free cult has already acquired a huge following all over the globe, and even more so in India. The trick of choosing a low cost credit card that has a series of advantageous options such as cash back and others is not at all easy. Spending money wisely and correctly through cheap credit card deals is something not many clients are aware of. And this fact is exploited to the hilt by the banking firms to their advantage.


Choosing the cheapest credit card is not often easy. This is because even if you research and determine a low cost credit card that has low interest rates and cheap interest APR, your spending habit might just do you in. This is because even with cheap credit card rates, if you mindlessly spend your money as if it was doomsday tomorrow, the whole purpose of the advantage of low cost credit card processing is lost on you. As you pay off the low interest items on your recently-bought list, the high interest stuff eats away at your bank balance. Therefore, it is as important to check it out whether the charging methods of your credit card firm fit your spending style.


Moreover having different cash back options available at your beck and call should be one primary option that these low cost credit cards must provide you with. The fact that most credit card companies default back on the cash back option is a potential cause of worry for all clients. Thus you will gain an upper hand in the cheap credit card deal only if you are absolutely well-versed with the array of cash back and other options provided to you by the firm.

The option of lucrative offers such as valuable points of fuel or grocery reward programs should also be considered while considering cheap credit card rates. This is because whilst you might lose out on different offers that come with more high-interest credit cards, such basic reward programs will more than compensate the loss.


Usually, low cost credit cards both in India are more about tall claims than reality. Hence, you as a potential client must keep in check the history as well as the track record of the credit card firm or banking organization that is dealing out cheap credit card interest et al. But above all, the lowest of all interest rates and APR rates will not be able to help you gain anything if your spending methods are not in sync with your actual income and lifestyle.

When shopping for credit cards get to know all the details, especially the fine print ones which one tends to ignore. Study its terms and costs for the best credit card rate. If you are looking for a no-frills, low-rate card offer, theres no need to pay the annual fees. Avoid cards that charge them. Many credit card rewards are given like air-mile credit card and some super high-end prestige cards charge annual fees in exchange for rewards and perks and services. Weigh these credit card offers carefully.

The best credit card interest rate is the one which is, obviously, the lowest. The lower the interest rate, the less money you will pay when you carry a balance. If a card comes with a super-low introductory rate, find out how long will this rate last and will you be able to pay off your card balance before the teaser rate expires. Use a low-interest rate credit card to make high-end purchases.

Precautions which helps against credit card fraud is listed as follows:


1.Ensure that you have received your credit card in sealed condition.

2.As soon as you receive your card, sign on its back.

3.Check your cards periodically to ensure that none are missing

4.Regularly monitor your account either from call centers or on the internet.

5.Subscribe to email/mobile alerts to monitor your card usage.

6.Ensure that wherever the card is presented it is swiped in your presence.

7.Keep track of your transactions, when you are traveling abroad.

8.Preserve the PIN and the card account number in a confidential place. .

9.PIN number should be memorized.

10.All records such as copies of receipts, airline tickets, travel itineraries, etc., should be destroyed.

11.Never share PIN with anyone.

12.Cancel all inactive accounts

Report credit card fraud or for lost/stolen cards immediately to the issuer.

The IT Act and Rules 2000, provide penalties for hacking of computer systems as a credit card fraud help to the masses. The RBI has formed the CIBIL in collaboration with Dun and Bradstreet who will maintain the records of all wanting to avail of finance from credit card companies and banks in India

IRDA not looking at consumer benefit: D Swarup

CNBC-TV18’s has learned from sources that the Insurance Regulatory and Development Authority, or IRDA, may send its dissent on the recommendations of the Swarup Committee as it is vehemently opposed to the suggestions, which included a no-load model for insurance products.

Commenting on the recommendations, Chairman of the pension fund regulator- PFRDA, D Swarup said the entire opposition to the draft recommendation in the consultation paper was only on one side of it. He accused the IRDA of only looking at the business side of the aspect without taking into account the consumer benefit. “They are being very sensitive about only the business side of the equation. They are not looking at the consumer side of the equation. The entire committee’s terms of reference is with reference to seeing the consumer’s interest and whatever opposition you might have heard either from the regulator or from the industry only talks about the impact it will have on the industry because they are dependent on the agent who pushes a product because of the commission’s structure.”


“What we have said is there is a commission that ranges from something like 6% and goes to as high as 40% in a product per se. The average commission paid out in 2007-08 has been of the order of 16.25%. The NPS right from day one has been a no-load product. Sebi followed suit on August 1 and they have declared.”


Here is an excerpt of the exclusive interview with D Swarup on CNBC-TV18. Also watch the accompanying video.


Q: We haven’t really spoken over the last year or two while we talked about the NPS but we haven’t really spoken about the larger picture, are pension reforms on track you feel, are they making a serious positive impact for the reason we first went in for these reforms?


A: We moved from 2005 and we began, the pension story began in 2005 when the PFRDA got constituted but there after you know that the progress has been slow mainly because of the PFRDA bill having not been passed by the Parliament and thanks to the government and they finally we agreed to what we had requested them and we don’t really require a bill to be passed by the parliament, to introduce a pension product in the country. We do require the bill to give statutory powers to the regulator but in the interim it could manage some pension reforms through a contractual arrangement with all the stakeholders in the business, so we have come a long way since then now. From 2005, we have introduced a new pension system, the government transferred the funds early April 2008 which are being managed by three fund managers. Then from the May 1 this year, we have opened up a scheme too all the citizens of the country. So we have moved far but other than that you are talking about the pension firms as well as a whole for the other participants, we also move in that direction also.


Q: The detractors of the whole pension reforms, thankfully are not there in the government any more but they would always say that there is a risk that this is pension money and you are going to investing a larger part of it as compared to the pervious regime where it was hardly ever invested in equities, its been over a year and a half when atleast the government corpus and employee corpus has been managed and this one year perhaps has seen a tsunami in the markets, can you give us a sense if you were to tell people that these are kind of returns that these managers have delivered in a market which was perhaps the worst in recent times, do you have some numbers that you can share with us?


A: I can but prior to the period when pension reforms were introduced, it was available to only 12-13% of our workforce so the story is only of those 12-13% people who are in a defined benefit regime like government employees and those are in the organized sector and covered by the provident fund organization. So the question of risk remains only in the remaining 87% people whose investment returns would be market related but as you mentioned. We have had experience of something like a full lone year now 2008-09 and the average returns have been 14.8%, but the fund managers have been a little conservative in the beginning so they didn’t invest more than 5% of the AUM in equity markets so 90% of the money was invested in debt and the returns have been 14.82% but we have seen a secular trend in the equities market also we have done an exercise to see us as to what have been the returns in the equity markets in the last 30-35 years and if you remain invested, the average return in the equity market ranges from 14-15% per annum and on a compounding basis and that’s not a bad story.


Q: So what you are saying is even despite being conservative?


A: Yes.


Q: It’s been 14%?


A: Yes


Q: In a market which has gone through perhaps an upheaval, and unparallel?


A: That risk will be there in any market related regime but you can always diversify risk before our investment options are flexible depending on your own personal risk appetite you can select and put more money in corporate bonds in government securities market, so their risk can be diversified but if you are not wanting to take that burden for deciding for yourself, we have worked out what we call an auto choice and depending on your age we have worked out how much you must invest in equities and in corporate bonds and how much in government securities market,


Q: Are you hopeful that this government will be able to now push through with the PFRDA bill?


A: I am very hopeful now because I understand the bill is now almost ready to go to the cabinet for the clearance and thereafter to be introduced in the next session of the parliament and hopefully before the end of this calendar year we should see that the PFRDA bill being converted into an act.


Q: The other big change which you mentioned about which happened is that earlier this year you threw open pension to every individual in the country through the NPS route hasn’t really taken off in the way perhaps even you would have thought it would have taken off? What is the problem?


A: Not really because we knew we won’t have a spectacular success story in the beginning because our product really suffers from three negatives and they are firstly awareness about saving for pensions, its not that much in the country as it should be, the second issue is about our selling model which is a direct selling model as distinct from the mutual funds and the insurance industry which are actually sold by the financial advisors and agents etc but our product has direct selling and distribution model, the individual has to go to a bank and has to go to somewhere to buy that product and the third reason why the success is not there as much as it should have been because of the tax disadvantage we suffered from.


Q: Why did that happen, here is a government which is committed at the highest level on pushing pension reforms and you make a change of a kind which says that I can invest in any other instruments and not need to pay tax after a certain point of time when I get my returns but in this its going to be taxable, have you been able to talk to the government, what is the feedback you have got from it?


A: We have been in discussion with the government for more than two years now on this area and ideally a retirement and a pension product should receive the most preferential tax treatment like the way it happens all over the world but somehow we began with the tax disadvantage but our discussions have borne fruit now and as you are aware the new tax code brings every long term savings product including retirement or the same tax stream which is the double ET regime as against the EEE which they enjoy today and we have EET, so now the government is taken a view that instead of taking us to a EEE tax regime that on stages is free on tax, they are bringing the other product into a EET regime.




Q: So they have removed the dis-incentive and they haven’t provided the incentive?


A: The first step is to have a level playing field, so I am quite happy that even though it’s still a little way away, something like 18 months from now the new tax code will come into being and hopefully the government will see that yes a level playing field is important in the financial product.


Q: Do you feel let down by the entities who you asked to sell these products, the NPS for instance and that really is the cornerstone for the success in NPS because as you said you went for a different model. But are you happy with the way they have gone about?


A: Let me talk about why we selected the Derick’s Selling Model and direct distribution model because of two main reasons, the first was that had we had an intermediary and an agent between the subscriber and the bank etc, then the cost would have gone up for the NPAs and ultimately the incidence of any cost falls on the investor like in insurance and like in mutual funds, so we didn’t want the cost to be high, the second reason was that we have seen and from the experience we have learnt that similar products get mis-sold by the agencies etc so they are the two main reasons, so we are willing to be patient and we are willing to wait rather than change our distribution model but having said that yes the impression that we had the points of sale that we selected and it would have done some preparation prior to being licensed in selling the product because they had been in discussion with us for quite some time and they were aware that this product is coming and I thought they will be ready to sell it but I found that they have started really doing the groundwork only after they got the license in May. So it obviously takes a little, training the individuals, printing the brochures and things of that nature and let me also say that the same points of sale are selling some competitive products also like insurance and mutual funds, as long as these products carry, some commissions built in into the price of product but obviously our products will not push across the counter by the bank etc. So we know these are the handicaps which we are suffering from, the corrective measures are in the pipeline.


Q: Are you de-licensing some of them?


A: No; I think that is too early for really to do that, we have had a detailed meeting with all and we have worked out a strategy for that and we have requested them to give us a business plan, to fix targets and so we will monitor their performance against that business plan and thereafter but its too early days to really de-license them..


Q: Let me come to the other very major decision that you’ve taken recently. A very critical component of our financial sector, which is the entire investment advisory community, which was till now not regulated or rather regulated by multiple entities, there was a committee that you chaired, which is the sort of first draft of your findings have been put out for public comment by you. You’ve called for certain fairly drastic changes and while you have started your product from the very beginning with a basic premise that you are not going to be making it a commission driven product. We have seen Sebi having said recently on August 1 that entry load is banned. The insurance industry seems a little concerned about what you announced. Where do you stand on this? Is this the basic fundamental principle that you as an investor should decide, and I think the misconception seems to be that commissions have been banned and that is not what you have done? All you have said is they should not be embedded into a financial product and that should be decided between an investor and the agent or the distributor or whatever you may call it?


A: We had, as you said, put up a consultation paper on our website something like three or four weeks ago. We had an interaction, which I call a public hearing for the first time and probably the first hearing on this subject something about 10 days ago in Delhi where we had invited all the stakeholders of the business including the insurance industry and the mutual fund industry, the pension industry and financial advisors and agents, experts etc., and all industry federations as well.


The three main recommendations in the consultation paper are: Firstly, the financial advisors need to be regulated more than what they had done or what happens today, and that too by ‘a’ agency and not by multiple agencies.


Secondly, there must be common minimum standards for these financial advisors in terms of the entry level, entry barriers, in terms of the examinations that they have to pass, in terms of continuing education etc. Then we came to the conclusion that there needs to be common disclosure norms for the benefit of the consumers of financial products. Finally, we thought that the time has now come that in all financial products, there should be no commission embedded in the price, which technically what we call a no-load structure, in the financial product.


There has been no opposition to any other conclusion except the last one that I mentioned that all products should go no-load and there should be no commission embedded in the product per se. As you rightly said, we have nowhere said that agents or financial advisors should not be paid for the services. In fact the committee has recognised the key role, which the agents and the financial advisors play in terms of personal finance, in terms of savings or in terms of investments in the country. So, we know that they will continue to play a very important role in this area. But we are only saying for the benefit of the consumer: Firstly, it needs to be disclosed to him as to what are the costs and commissions and fees and other charges and risks involved. So, all that has to be put in very understandable language to the consumer.


The second is, if you embed a commission in the price, then obviously the financial advisor will push that product in which he gets the highest commission. We think that is detrimental to the interests of the consumer of the financial product. We have said let it be converted into a fee, which the consumer must pay the agent directly. I am not saying that it should be paid through two different cheques. It can be paid in the same cheque as well. That is only a micro detail that we can work on. So, that is the only reason we have said the commission will be converted into a fee.


Q: Why then is the insurance industry up in arms? What you are saying is the fact that it is a consumer driven initiative that is meant to benefit the consumer? Why has the insurance industry, the regulator, come out so openly, and questioned the very logic of the recommendations of this committee?


A: Obviously it affects the industry’s role. In fact, as I mentioned earlier, the entire opposition to the draft recommendation in the consultation paper is only on one side of it, and that is, they are being very sensitive about only the business side of the equation, of what we are mentioning. They are not seeing the consumer side of the equation now. The entire committee's terms of reference is with reference to seeing the consumer's interest and whatever opposition you might have heard either from the regulator or from the industry, only talks about the impact it will have on the industry because they are dependent on the agent who sort of pushes a product because of the commission structure.


What we have said is there is a commission that ranges from something like 6% and goes up to as high as 40% in a product per se. The average commission paid out in 2007-08 has been of the order of 16.25%. The NPS right from day one has been a no-load product. Sebi followed suit on August 1 and they have declared.


Q: All global regulators are going the same way?


A: Yes, most of the global regulators also are going the same way. It is not that we have been influenced only by what is happening across the world. We think the time has come in India as well that the consumer must be aware firstly of what he is paying and secondly it should not be embedded in the price because whatever the level of financial literacy is there in our country, a product that has a high commission structure will continue to be pushed in case it is embedded in the price of the product per se.


Q: An IRDA representative was a part of your committee. That was a multi-regulatory committee. Have they dissented?


A: In fact we had two members from IRDA as against one member each from RBI, Sebi and PFRDA. But the fact really is they have not really dissented as such but they have expressed the view that this is going to hugely impact the industry. But as I mentioned, they are seeing only the business side of the equation, they are not seeing the consumer. We have trying to persuade and convince them that the time has now come to see the consumer side of the equation.


Q: If I remember right, in the previous committee, which went nowhere after 18 months, you had dissented and said that there needs to be more thought given to this report?

A: That is right.

Q: Today you are faced with a situation where one regulator is atleast openly, publicly saying that this is not the right way ahead. Are you going to change your mind? Are you very clear about your decision?


A: As I said, this is only at the draft stage at this point in time. We have sort of discussing within the committee and in fact we had a meeting yesterday. Some more facts and figures have to be collected. Finally, we are going to take a view in the second week of October and that is the end of the commission.


Q: But are you saying that you may look at the timeframe, you may look at the timetable and numbers. But in principle you are very clear that this whole concept of embedded commissions into a financial product must go?


A: I think conceptually and all the inputs that we are getting in the committee’s consultation paper point to the direction that conceptually we are in the right direction. I see no reason why conceptually anything should change from what is said that all – there should be a level playing field including in the commission structure across financial products. Conceptually I don’t think the majority in the committee is likely to change their point of view.


Courtesy-Published on Thu, Sep 24, 2009 at 21:37
Updated at Sat, Sep 26, 2009 at 14:38
Source : CNBC-TV18

New Pain of Life Insurance companies in India

The new Ulip norms are taking its toll on policy sales by life insurers, including the Life Insurance Corporation of India (LIC).


The new regulations came into force in September and premium income from new policy sales in the month is nearly half of that in August this year.

According to experts, the minimum premium for Ulips has gone up under the new regime leading to lower sales.

Moreover, the new norms have trimmed the agent’s commission for selling Ulips, who are no longer pushing these products aggressively.

Ulips make up almost 55 per cent of all insurance policies sold in the country. These policies constitute almost 80 per cent of a private life insurer’s business portfolio.

In August, life insurers together collected Rs 18,500.49 crore as premium from sale of new policies. However, premium income from new policies in September stood at Rs 9,612.74 crore, a month-on-month decline of 48.04 per cent.

The business of private life insurance companies slipped 21.85 per cent to Rs 3,006.10 crore in September from Rs 3,846.67 crore in August.

The steep decline in life insurance business in September can be attributed mostly to the LIC, which recorded a first-year premium income of Rs 6,606.64 crore last month against Rs 14,653.82 crore collected in August, a decline of nearly 55 per cent. Keeping the September deadline in mind, the LIC had been aggressively selling its unit-linked Market Plus-I plan between April and August this year. LIC controls a 74 per cent share of the new business premium market.

Among the front-running private players, SBI Life lost the least, while Birla Sun Life’s business declined the most. SBI Life’s first premium income in September dipped only 8 per cent, while that of Birla Sun Life plummeted 43 per cent.

In case of Reliance Life Insurance, premium income from new businesses went down 33 per cent in September from the previous month.

Given the fact that traditionally September-March is the peak period for life insurance policy sales in India, it will be interesting to see how insurers gear up to cope with this situation. They had done brisk business during April-August this year, particularly by selling single-premium unit-linked pension plans.

Interestingly, a number of insurers, such as Aegon, Religare and Reliance Life have already launched defined benefit health insurance plans to diversify their product portfolio and thereby shore up premium income. Some insurers, such as ICICI Prudential, have started focusing on selling single-premium Ulips.

While premium income from new businesses has declined in September, the average size of premium ticket has gone up for all insurers, except for the LIC. This is because insurers have increased their threshold premium for Ulips.

Life insurers deal a mortal blow

Calcutta, Sept. 26: Life insurers have tossed ethics out of the window, and the insurance regulator seems to be looking the other way.

In a concerted move, a number of life insurance companies have quietly increased the mortality charges on their unit-linked plans (Ulips) from September 1.

The Insurance Regulatory and Development Authority (IRDA) didn’t find anything wrong with that and cleared a passel of new plans recently.

The move is another blow for investors in Ulips — the product that stormed the mutual fund bastion a couple of years ago and sparked a tussle for regulatory oversight between the IRDA and capital market watchdog Sebi earlier this year.

Earlier, the life insurers raised the entry barriers for Ulips by increasing the minimum monthly premium on a policy to anywhere between Rs 1,500 and Rs 3,000 a month from Rs 500 to Rs 2,000 earlier. Clearly, the insurers were looking to target the well heeled through the new Ulip plans.

But in an even more sinister move, they have raised the mortality charge, which is the cost deducted from the premium you pay to cover the payment of death benefits.

Why to worry?

Let us suppose you have bought a policy with a sum assured of Rs 10 lakh and the total premium (or the investment fund value in the case of a Ulip) paid till now is Rs 2 lakh. If you happen to die now, the risk of death benefit payment on the insurer is Rs 8 lakh.

To cover this risk, the insurer deducts the mortality charge from your premium. While the mortality premium is calculated on the sum at risk (Rs 8 lakh in our example), the premium rate is determined by the mortality table.

Mortality measures the probability of death, and the mortality premium rate increases with the increase in the age of the policyholder.

From September 1, the insurers have increased the mortality premium rates for each age category steeply compared with the Ulips they sold before.

For example, the mortality charge for a 20-year old policyholder was Rs 1.122 per Rs 1,000 sum at risk in the case of Bajaj Allianz Life’s Max Gain policy. The insurer has now more than doubled it to Rs 2.57 per Rs 1,000 sum at risk in its new Ulip Max Advantage.

The insurers have a glib explanation for this move.

“We have increased the mortality charges because the minimum sum assured has now gone up to 10 times the annual premium from five times earlier. Under our new Ulips, we are giving both the sum assured and the fund value as death benefit. Besides, there is a built-in accident death cover,” said a senior official with Bajaj Allianz Life Insurance Company.

However, this argument is a little woolly because almost all insurers had earlier been offering a sum assured under their Ulip plans of as high as 20 times the annual premium.

Type II Ulips — where both the sum assured and the fund value are given on the death of the policyholder during the policy term — have always been around and nobody used this as an excuse to raise the mortality charge. For example, SBI Life’s Unit Plus Elite II didn’t slap differential mortality charges.

The insurers’ argument can also be easily demolished. If the sum at risk goes up at any given point of time, the mortality premium, calculated at a given rate, automatically goes up. So why tweak the rate?

“The mortality premium rates can vary if the underwriting conditions change or if the insurer experiences a high claim ratio in a particular product,” said G.N. Agarwal, chief actuary of Future Generali Life Insurance Company.

“We have also noticed some companies increasing their mortality charges. This should not have happened. It isn’t proper,” said Agarwal, who formerly was an actuary with the Life Insurance Corporation of India. “I don’t understand how the regulator approved these products without seeking clarifications from the insurers.”

S.B. Mathur, secretary-general of the Life Insurance Council, the lobbying body of life insurance companies in the country, said he was not aware of this development. However, he added, “This should not have happened. I am not aware of this. Therefore, I cannot make further comments. I’ll take a look at it.”

Sinister purpose

In its revised circular issued in August 2009 that capped charges relating to Ulips, the insurance regulator excluded mortality charges from the overall cap on expenses while determining the investment returns of policyholders.

The first circular in July 2009 had, however, included mortality charges within the overall cap on expenses.

After August 2009, insurers such as SBI Life increased the mortality charges while reducing its premium allocation and other charges.

“After the new regulations came into place from September 1, insurers have been increasing their mortality charges to make profits which otherwise would have suffered,” Agarwal explained.

What the insurer doesn’t tell you is that profits earned from the investment of mortality premium accrue to the shareholders of the insurance company and not to its policyholders.

Therefore, an increase in mortality charges imply more investible fund for an insurance company and, hence, greater distributable profits to shareholders. “This could be another reason why insurers are raising their mortality charges,” admits Agarwal.

The Telegraph, Kolkata. Monday , September 27 , 2010

Some very useful and safe investment tools in India

Senior Citizen's Savings Scheme


• 9% interest per annum payable quarterly

• Minimum Deposit: Rs.1,000 and multiples thereof

• Maximum Limit: 15 Lakhs

• The scheme is for 5 years and can be extended for a further period of 3 years

• Premature closure facility is available after 1 year with nominal penalty

• Risk free investment

• Individual aged of 60 years and above can invest

• Retiring employees aged 55 years and above can invest under scheme

• A tax saving instrument

• Joint account can be opened with spouse

• Best Return

• Very Safe investment - A central govt. scheme

Public Provident Fund

• The rate of interest is 9.5% compounded annually

• The minimum deposit is Rs.500 p.a.

• The maximum is Rs.70,000 p.a.

• Interest is totally tax free

• Tax saving instrument under section 80C

• Loan facility available from third year

• The PPF Scheme is a statutory scheme of the Central Government of India.

• The Scheme is for 15 years

• One deposit with a minimum amount of Rs.500 is mandatory in each financial year

• The deposit can be in lump sum or in convenient installments, not more than 12 installments in a year or two installments in a month, subject to total deposit of Rs.70,000

• It is not necessary to make a deposit in every month of the year

• The amount of deposit can be varied to suit the convenience of the account holders

• The account in which deposits are not made for any reason is treated as discontinued, account and such an account cannot be closed before maturity

• The discontinued account can be activated by payment of the minimum deposit of Rs.500 with default fee of Rs.50 for each defaulted year

• The account can be opened by an individual or a minor through the guardian

• Joint account is not permissible

• Those who are contributing to GPF Fund or EDF account can also open a PPF account

• A Power of Attorney holder can neither open nor operate a PPF account

• The grandfather/mother cannot open a PPF on behalf of his/her minor grandson/daughter.

• The deposits shall be in multiples of Rs.5 subject to minimum of Rs.500

• The deposit in a minor account is clubbed with the deposit of the account of the guardian for the limit of Rs.70,000

• No age is prescribed for opening a PPF account

• Interest is not contractual but the rate is notified by the Ministry of Finance, GoI, at the end of each year

• The facility of first withdrawal in the 7th year of the account subject, to a limit of 50% of the amount at credit preceding three year balance

• Thereafter one withdrawal in every year is permissible

• Premature closure of a PPF Account is not permissible except in case of death

• Nominee/legal heir of PPF Account holder on death of the account holder cannot continue the account

• The account has to be closed in such case

• The account holder has an option to extend the PPF account for any period in a block of 5 years at each time

• The account holder can retain the account after maturity for any period without making any further deposits

• The account holder can retain the account after maturity for any period without making any further deposits

• The balance in the account will continue to earn interest at normal rate as admissible till the account is closed

• One withdrawal in each financial year is also admissible in such account

• A PPF account can be opened either in a Post Office or in a Nationalsed Banks

• The Account is transferable from one Post Office to another and from Post Office to Bank or from a Bank to a Post office

• Account is transferable from one Bank to another bank as well as within the bank to any branch

• Deposits in PPF qualify for rebate under section 80-C of Income Tax Act.

• The interest on deposits is totally tax free

• Deposits are exempt from wealth tax

• The balance amount in the PPF account is not subject to attachment under any order or decree of court in respect of any debt or liability

• Nomination facility is available.

• The Best option for long term investment

Post Office Time Deposit Scheme

• Interest payable annually but calculated quarterly at following rates:

Period Rate of Interest

One Year 6.25%

Two Years 6.50%

Three Years 7.25%

Five Years 7.50%



• Minimum amount of deposit is Rs.200

• No maximum limit

• Account can be closed after 6 months but before one year without any interest

• Facility of redeposit on maturity of an account

• No interest is payable on un-drawn interest amount

• Account can be opened by an individual, two adults jointly and minor through guardian

• A Minor who has attained the age of 10 years can open the account in his/her own name to be operated directly

• Non Resident Indian / HUF cannot open the account

• Any number of accounts can be opened

• Two, three and five years accounts can be closed after one year at a discounted rate of interest

• Deposits not drawn on maturity are eligible to saving account interest rate for a maximum period of two year

• Account can be pledged as security against a loan to banks/ Government institutions

• Accounts are transferable from one Post office to any Post office in India

• Rebate under section 80-C is not admissible

• Interest income is taxable

• Deposits are exempt from wealth tax

• No TDS

• Nomination facility available


Post Office MIS

• Interest rate of 8% per annum payable monthly

• 5% bonus also payable on maturity period is 6 years

• Minimum investment amount is Rs.1,500 or in multiple thereof

• Maximum amount is Rs.4.50 lakhs in a single account and Rs.9 lakhs in a joint account

• Premature encashment facility after one year

• No TDS

• Account can be opened by an individual, two/three adults jointly, and a minor through a guardian

• A minor having attained 10 years of age can open an account in his/her own name directly

• Non-Resident Indian / HUF cannot open an Account. Minors have a separate limit of investment of Rs.3 lakhs and the same is not clubbed with the limit of guardian

• A separate account is opened for each deposit

• Any number of accounts can be opened subject to the maximum prescribed limit

• Facility of automatic credit of monthly interest to saving account if accounts are at the same post office

• Facility of premature closure of account after 1 year to 3 years @ 2.00% discount

• Deduction of 1% if account is closed prematurely at any time after three years

• Facility of reinvestment on maturity of an account

• Interest not withdrawn does not carry any interest

• Maturity proceeds not drawn are eligible to earn savings account interest rate for a maximum period of two years

• Account is transferable to any Post Office in India, free of cost

• Nomination facility is available

• Rebate under section 80 C is not admissible

• Most suitable scheme for senior citizens and for those who need regular monthly income

• Deposits are exempt from Wealth Tax



National Savings Certificate

• Rs.1,000 grows to Rs.1,601 in six years

• Minimum investment Rs.500

• Maximum no limit

• Certificates can be pledged as security against a loan to banks/ financial Institutions

• A Tax saving investment under Sec 80C

• Individual or minor can apply

• Rate of interest 8% compounded half yearly

• Two adults, individuals, and minor through guardian can purchase

• Companies, Trusts, Societies or any other Institutions are not eligible to purchase

• Non-resident Indian/HUF cannot purchase

• No premature encashment

• Annual interest earned is deemed to be reinvested and qualifies for tax rebate for the first 5 years under section 80 C of the Income Tax Act

• Maturity proceeds not drawn are eligible to Post Office Savings Account interest for a maximum period of two years

• Facility of reinvestment on maturity

• Facility of encashment of certificates through banks

• Certificates are en-cashable at any Post Office in India before maturity by way of transfer to desired Post Office

• Certificates are transferable to any Post office in India

• Certificates are transferable from one person to another person before maturity

• Duplicate certificate can be issued for in case the original one gets lost, stolen, destroyed, mutilated or defaced certificate

• Nomination facility is available.

• Facility of purchase/payment to the holder of Power of Attorney

• Tax Saving instrument - Rebate admissible under section 80 C of the Income Tax Act

• Deposits are exempt from Wealth Tax

Kisan Vikas Patra

• Money doubles in 8 years and 7 months

• Facility for premature encashment

• No maximum limit on investment

• No TDS

• Rate of interest 8% compounded annually

• Two adults, individuals and minor through guardian can purchase

• Companies, Trusts, Societies or other Institutions are not eligible to purchase

• Non-Resident Indian/HUF are not eligible to purchase

• Maturity proceeds not drawn are eligible for Post Office Savings account interest for a maximum period of two years

• Facility of reinvestment on maturity

• KVPs can be pledged as security against a loan to Banks/Govt. Institutions

• KVPs are encashable at any Post Office before maturity by way of transfer to desired Post office

• KVPs are transferable to any Post Office in India

• KVPs are transferable from one person to another person before maturity

• Duplicate can be issued for lost, stolen, destroyed, mutilated and defaced parts

• Nomination facility is available

• Facility of purchase/payment of Kisan Vikas Patras to the holder of Power of Attorney

• Rebate under section 80 C is not admissible

• Deposits are exempt from Wealth Tax

Bonds

6.5% Tax-free bonds has been withdrawn from the market. This will not effect the investments already made.

2. Taxable Bonds

The salient features of the Bond are as follows:

The Bonds may be held by -

a) an individual, not being a Non-Resident Indian (NRI)

i) in his or her individual capacity, or

ii) in an individual capacity on joint basis, or

iii) in an individual capacity on anyone or survivor basis, or

iv) on behalf of a minor as father/mother/legal guardian


b) a Hindu Undivided Family


c) As follows

i) 'Charitable Institution' to mean a Company registered under Section 25 of the Indian Companies Act 1956 or

ii)an institution which has obtained a Certificate of Registration as a charitable institution in accordance

with a law in force; or

iii)any institution which has obtained a certificate from Income Tax Authority for the purpose of

Section 80G of the Income Tax Act, 1961

d) "University" means a university established or incorporated by a Central, State or Provincial Act, and includes an institution declared under section 3 of the University that Act, 1956 (3 of 1956), to be a university for the purposes of that Act

Limit of Investment

There is no maximum limit for investment in the Bonds


Tax Treatment

• Income-Tax: Interest on the Bonds will be taxable under the Income-Tax Act, 1961 as applicable according to the relevant tax status of the bond holder

• Wealth Tax: The Bonds will be exempt from Wealth-tax under the Wealth- Tax Act, 1957

Issue Price

• The Bonds will be issued at par i.e. at Rs.100 percent

• The Bonds will be issued for a minimum amount of Rs.1,000 (face value) and in multiples thereof. Accordingly, the issue price will be Rs.1,000 for every Rs.1,000(Nominal)

Subscription

Subscription to the Bonds will be in the form of Cash/Drafts/Cheques. Cheques or drafts should be drawn in favor of the Receiving Office, specified in paragraph 10 below and payable at the place where the applications are tendered.

Date of Issue

• The Bonds will be issued with effect from 21st April 2003

• The date of issue of the Bonds in the form of Bond Ledger Account will be the date of receipt of subscription in cash or the date of realisation of draft/cheque

Form

• The Bonds will be issued and held at the credit of the holder in an account called Bond Ledger Account (BLA)

• New Bond Ledger series with the prefix (TB) are to be opened. All investment in 8% Savings (Taxable) Bonds by an existing BLA holder will be viewed as a new investment under a new BLA

• The Bonds in the form of Bond Ledger Account will be issued by and held with designated branches of the agency banks and SHCIL as authorized by Reserve Bank of India in terms of paragraph 10 below

• The Certificate of Holding in respect of Bond Ledger Account will be issued in Form TBX or Form TBY as applicable for non-cumulative and cumulative investments respectively

• The Certificate of Holding in respect of cash applications may be issued on the same day as per the extant instructions

Applications

• Applications for the Bonds may be made in Form ‘A’ (Annex 2) or in any other form as near as thereto stating clearly the amount and the full name and address of the applicant

• Applications should be accompanied by the necessary payment in the form of cash/drafts/cheques as indicated in paragraph 6 above

• Applicants who have obtained exemption from tax under the relevant provisions of the Income Tax Act, 1961, shall make a declaration to that effect in the application (in Form 'A') and submit a true copy of the certificate obtained from Income-Tax Authorities.

Receiving Offices

Applications for the Bonds in the form of Bond Ledger Account will be received at:

a) Authorised Branches of State Bank of India, Associate Banks, Nationalised Banks,

private sector banks and SHCIL as specified in the Annex 3

b) Any other bank or branches of the banks and SHCIL as may be specified

by the Reserve Bank of India in this regard from time to time.

Nomination

A sole holder or a sole surviving holder of a Bond, being an individual, may nominate in form B (Annex – 4) or as near thereto as may be, one or more persons who shall be entitled to the Bond and the payment thereon in the event of his/her death.

Transferability

The Bond in the form of Bond Ledger Account shall not be transferable.

Interest

a) The bond will be issued in cumulative and non-cumulative form, at the option of the investor

b) The Bond will bear interest at the rate of 8% per annum. Interest on non-cumulative bonds will be payable at half-yearly intervals from the date of issue in terms of paragraph 7 above. Interest on cumulative bonds will be compounded with half-yearly rests and will be payable on maturity along with the principal. In the latter case, the maturity value of the Bonds shall be Rs.1,601 (being principal and interest) for every Rs.1,000 (Nominal). Interest to the holders opting for non-cumulative Bonds will be paid from date of issue in terms of paragraph 7 above upto31st July/31st January, as the case may be and thereafter at half-yearly for period ending 31st July/31st January on 1st August and 1st February. Interest on Bond in the form of "Bond Ledger Account" will be paid, by cheque/warrant or through ECS by credit to bank account of the holder as per the option exercised by the investor/holder.

Advances/Tradability against Bonds

The Bonds shall not be tradable in the secondary market and shall not be eligible as collateral for loans from banks, financial Institutions and Non Banking Financial Companies, (NBFC) etc.

Repayment

The Bonds shall be repayable on the expiry of 6 (Six) years from the date of issue. No interest would accrue after the maturity of the Bond.

Some FAQ’s on Unit Linked Insurance Polices (ULIPS) & Traditional pPolicies

1. What is a ULIP?

ULIP is an abbreviation for Unit Linked Insurance Policy. A ULIP is a life insurance policy which provides a combination of risk cover and investment. The dynamics of the capital market have a direct bearing on the performance of the ULIPs. REMEMBER THAT IN A UNIT LINKED POLICY, THE INVESTMENT RISK IS GENERALLY BORNE BY THE INVESTOR.

2. What is a Unit Fund?

The allocated (invested) portions of the premiums after deducting for all the charges and premium for risk cover under all policies in a particular fund as chosen by the policy holders are pooled together to form a Unit fund.

3. What is a Unit?

It is a component of the Fund in a Unit Linked Policy. 4. What Types of Funds do ULIP Offer?

Most insurers offer a wide range of funds to suit one’s investment objectives, risk profile and time horizons. Different funds have different risk profiles. The potential for returns also varies from fund to fund.

The following are some of the common types of funds available along with an indication of their risk characteristics.

Primarily invested in company stocks with the general aim of capital appreciation

Invested in corporate bonds, government securities and other fixed income instruments sometimes known as Money Market Funds — invested in cash, bank deposits and money market instruments

5. Are Investment Returns Guaranteed in a ULIP?

Investment returns from ULIP may not be guaranteed.” In unit linked products/policies, the investment risk in investment portfolio is borne by the policy holder”. Depending upon the performance of the unit linked fund(s) chosen; the policyholder may achieve gains or losses on his/her investments. It should also be noted that the past returns of a fund are not necessarily indicative of the future performance of the fund.

6. What are the Charges, fees and deductions in a ULIP?

ULIPs offered by different insurers have varying charge structures. Broadly, the different types of fees and charges are given below. However, it may be noted that insurers have the right to revise fees and charges over a period.



6.1 Premium Allocation Charge

This is a percentage of the premium appropriated towards charges before allocating the units under the policy. This charge normally includes initial and renewal expenses apart from commission expenses.

6.2 Mortality Charges

These are charges to provide for the cost of insurance coverage under the plan. Mortality charges depend on number of factors such as age, amount of coverage, state of health etc

6.3 Fund Management Fees

These are fees levied for management of the fund(s) and are deducted before arriving at the Net Asset Value (NAV).

6.4 Policy/ Administration Charges

These are the fees for administration of the plan and levied by cancellation of units. This could be flat throughout the policy term or vary at a pre-determined rate.

6.5 Surrender Charges

A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions.

6.6 Fund Switching Charge

Generally, a limited number of fund switches may be allowed each year without charge, with subsequent switches, subject to a charge.

6.7 Service Tax Deductions

Before allotment of the units, the applicable service tax is deducted from the risk portion of the premium.

Investors may note, that the portion of the premium after deducting for all charges and premium for risk cover is utilized for purchasing units



7. What should one verify before signing the proposal?

One has to verify the approved sales brochure for

• All the charges deductible under the policy

• Payment on premature surrender

• Features and benefits

• Limitations and exclusions

• Lapsation and its consequences

• Other disclosures

• Illustration projecting benefits payable in two scenarios of 6% and 10% returns as prescribed by the life insurance council.



8. How much of the premium is used to purchase units?

The full amount of premium paid is not allocated to purchase units. Insurers allot units on the portion of the premium remaining after providing for various charges, fees and deductions. However the quantum of premium used to purchase units varies from product to product.

The total monetary value of the units allocated is invariably less than the amount of premium paid because the charges are first deducted from the premium collected and the remaining amount is used for allocating units.

9. Can one seek refund of premiums if not satisfied with the policy, after purchasing it?

The policyholder can seek refund of premiums if he disagrees with the terms and conditions of the policy, within 15 days of receipt of the policy document (Free Look period). The policyholder shall be refunded the fund value including charges levied through cancellation of units subject to deduction of expenses towards medical examination, stamp duty and proportionate risk premium for the period of cover.


10. What is Net Asset Value (NAV)?

NAV is the value of each unit of the fund on a given day. The NAV of each fund is displayed on the website of the respective insurers.

11. What is the benefit payable in the event of risk occurring during the term of the policy?

The Sum Assured and/or value of the fund units is normally payable to the beneficiaries in the event of risk to the life assured during the term as per the policy conditions.

12. What is the benefit payable on the maturity of the policy?

The value of the fund units with bonuses, if any is payable on maturity of the policy.

13. Is it possible to invest additional contribution above the regular premium?

Yes, one can invest additional contribution over and above the regular premiums as per their choice subject to the feature being available in the product. This facility is known as “TOP UP” facility.

14. Whether one can switch the investment fund after taking a ULIP policy?

Yes. “SWITCH” option provides for shifting the investments in a policy from one fund to another provided the feature is available in the product. While a specified number of switches are generally effected free of cost, a fee is charged for switches made beyond the specified number.

15. Can a partial encashment/withdrawal be made?

Yes, Products may have the “Partial Withdrawal” option, which facilitates withdrawal of a portion of the investment in the policy. This is done through cancellation of a part of units.

16. What happens if payment of premiums is discontinued?

a) Discontinuance within three years of commencement – If not all the premiums have been paid for at least three consecutive years from inception, the insurance cover shall cease immediately. Insurers may give an opportunity for revival within the period allowed; if the policy is not revived within that period, surrender value shall be paid at the end of third policy anniversary or at the end of the period allowed for revival, whichever is later.


b) Discontinuance after three years of commencement — at the end of the period allowed for revival, the contract should be terminated by paying the surrender value. The insurer may offer to continue the insurance cover, if so opted for by the policyholder, levying appropriate charges until the fund value is not less than one full year’s premium. When the fund value reaches an amount equivalent to one full year’s premium, the contract shall be terminated by paying the fund value.



17. What information related to investments is provided by the Insurer to the policyholder?

The Insurers are obliged to send an annual report, covering the fund performance during previous financial year in relation to the economic scenario, market developments etc. which should include fund performance analysis, investment portfolio of the fund, investment strategies and risk control measures adopted.


What is a term assurance?

Term assurances are the purest and cheapest form of insurance. Term assurances are plans where benefits are payable only on the death of the policyholder within the term.

What is whole life plan?

Whole life plans are a special type of term assurance wherein the term of the policy is whole of the life. So it follows that benefits under the policy are payable only on death of the policy holder.


What is an endowment assurance plan?

Endowment plans are among the most popular forms of insurance as they provide both insurance coverage and act as a savings instrument. These are the plans wherein benefits are payable on death within the term or survival to maturity whichever is earlier.

What is money back plan?

Money back plans are a special type of endowment plans and are called as anticipated endowment assurance plans. Under money back plans, survival benefits are spread over the term of the policy i.e., certain percentage of sum assured is paid at regular intervals. Apart from the above death benefit continues like an endowment plan i.e., full sum assured shall be payable on death within the term irrespective of earlier survival benefits.

What is an assignment?

Assignment is a means whereby the beneficial interest, right and title under a policy gets transferred from the assignor to the assignee. ‘Assignor’ is the policyholder who transfers the title and ‘Assignee’ is the person who derives the title from the assignor.

When to assign a policy

Assignment can be made only after acquiring the policy. Assignment can be done only for consideration- for money or money’s worth or good, moral and meritorious consideration like, love and affection.


Procedure to assign a policy

Assignment can be done by mere endorsement on the policy or by a separate duly stamped deed. The proposer, policyholder, or the absolute assignee can do assignment.


Pre-requisites for a valid assignment

Assignor must be a major. Assignor must have an absolute right over the policy. Assignment must be in writing. Assignor’s signature along with a witness is a must. Notice of assignment is to be submitted to the insurer.

Types of assignments

There are two kinds of assignments.

» Conditional Assignment

» Absolute Assignment

Conditional assignment is usually effected for consideration of natural love and affection. Absolute assignment is usually affected for valuable consideration.

The rights of an assignor and assignee

On assigning the policy, the assignor (life assured/policy holder) loses his right over the policy and the assignee gets the right and becomes the owner of the policy. The assignee can further re-assign the policy and he has a right to sue under the policy.

A valid Assignment once made cannot be cancelled. It is only a valid assignment the earlier assignment is cancelled. In all the cases, Assignment automatically cancels the nomination. However, when the policy is assigned to the insurer, nomination gets affected and it is not cancelled.

Under conditional assignment, if the conditional assignee dies, the benefit under the policy goes back to the life assured if surviving. Otherwise, the benefit goes to policyholder’s nominee. Under absolute assignment, if the absolute assignee dies, the benefits under the policy go to the legal heirs of the assignee.

What is nomination?

Nomination is the process of identifying a person to receive the policy money in the event of the death of the Policyholder.

When to nominate

Nomination can be done at the inception of the Policy by providing details of nominee in the proposal form. However, if the nomination is not done at the inception of the policy, the policyholder can nominate later. This nomination has to be effected by giving notice in a prescribed form to the insurer and getting it endorsed on Policy Bond.

Change of Nomination

The Policyholder can do change of Nomination any time during the term of the Policy and any number of times. For this, the policyholder has to give a notice in a prescribed form to the insurer and getting it endorsed at the back of the Policy. Further, the Policyholder can remove Nomination any time without giving prior notice to the Nominee.

Procedure for Nomination

Only a policyholder who is a major holding Policy Bond in his own name can do nomination. In the case of Children’s Policies, Nomination is not done until the Child becomes major.

Rights of a nominee

Under Nomination, the Nominee gets only the right to receive the policy money in the event of the death of the Policyholder. Nomination does not pass on the property in the Policy. If Nominee dies when the Policyholder is still surviving then the nomination would be ineffective. Nomination has no effect if the Policyholder is surviving. If Nominee dies after the death of the policyholder but before receiving policy money, then also Nomination becomes ineffective and only the Legal Heirs of the Policyholder can claim money.

Can I take a loan on my policy ?

Policyholders are eligible to take loans on their policies subject to certain rules. The policyholder has to apply for a loan in a prescribed form and submit the Policy Bond with the form duly completed. The loan amount is calculated depending on the Surrender Value (SV) that the policy would have acquired, and approximately 85% of the Surrender Value is given as loan.

Rate of interest charged varies from company to company and time to time. A policyholder can repay the loan amount either in part or in full any time during the term of the Policy. If the loan amount is not repaid during the term of the Policy or early claim, the amount of loan plus interest, if any, will be deducted from the claim money and the balance amount will be paid to the claimant.

LIC is currently charging 10.5% interest payable half-yearly on Policy Loans. For LIC, the minimum repayment should be Rs. 50 and thereafter-in multiples of Rs. 10. If the interest is not paid regularly every half year, then the interest is calculated on compound interest basis.

If the interest is not paid regularly every half year, then the interest is calculated on compound interest basis.

How can I revive a policy?

A policy is lapsed if the premiums are not paid within the due date or the period of grace permitted by the insurance company. However, a lapsed policy can be revived and procedure varies from company to company.


In case of LIC, a lapsed policy can be revived within 5 years from the date of first unpaid premium. A policy can be revived under five different schemes.

Ordinary Revival Scheme: Under this scheme, all the arrears of unpaid premiums with interest have to be paid. Along with this, ‘Declaration of Good Health’ in Form No. 680 and medical certificate, if necessary, are required.

• Special Revival Scheme: If a person is not in a position to pay all the arrears, then, he can choose this scheme. Under this scheme, the date of commencement will be shifted so that the policy is not lapsed just prior to the date of revival, i.e., the date of commencement is advanced approximately by the period of lapse. Other requirements like those that ‘Declaration of Good Health’ and Medical certificate wherever necessary are required as in Ordinary Revival.

• Special Revival is allowed under the following conditions:

• The policy should not have acquired any surrender value.

• Revival should be within 3 years of lapse.

• Special Revival is allowed only once during policy term.


• Revival by Installment method: If a policyholder cannot pay arrears in one lump sum and if the policy cannot be revived under Special Revival Scheme, he can make use of Installment Revival Scheme. In this scheme, on the date of revival he has to pay immediately:

» 6 months premiums, if mode is Monthly

» 2 quarterly premiums, if mode is Quarterly

» 1 Half year premium, if mode is Half yearly

» Half of the yearly premium, if mode is yearly

The balance of revival amount is paid in installments spread over two years along with normal premium installments. Other requirements regarding health care, as required in Ordinary Revival Scheme.

Loan-cum-Revival Scheme: If a policy acquires surrender value on the date of revival, the policy can be revived taking a policy loan. Loan amount will be calculated treating the premiums as paid up to the date of revival. Shortfall, if any, in revival amount is called for. If loan amount is more than required for revival, the excess will be paid to the policyholder.

Survival Benefit-cum-Revival Scheme : The Survival Benefit which falls due in a money-back type of policy can be used for revival of the policy, if date of revival is later than the Survival Benefit due date. Here, if the SB amount is less than the revival amount, the short fall will be called for. If the SB is more than the revival amount, the excess is paid back to the policyholder. The other requirements for normal SB settlement and revival requirement are to be fulfilled.

What is the procedure in case of a lost policy?

The policy issued by the insurer is a valuable document and should be stored in a safe place till its maturity. In case the policy gets lost, destroyed or mutilated, then the policyholder must immediately procure a duplicate policy


The need to possess a duplicate policy arises on the following occasions:

» At the time of receiving Maturity Amount or Death claim.

»To obtain Surrender Value/Loan.

» To obtain a Duplicate Policy in other cases.

In case of LIC, the procedure involved to obtain the duplicate Policy under the above circumstances is as follows:

At the time of receiving Maturity Amount or Death, claim:

The policyholder must duly fill loss of Policy questionnaire.

» Indemnity Letter in Form No. 3815 a (unstamped) if the claim amount does not exceed Rs. 5,000 and no surety is required.

» Discharge Form is to be submitted.

» Form of Declaration of ‘No Assignment’ is to be submitted.

» A declaration by Surety having sound financial status, acceptable to LIC in appropriate Form is required, if the claim amount exceeds Rs. 5,000. To Obtain Surrender Value: Indemnity Bond in

» Form No. 3815 duly stamped and executed by the Policyholder along with Surety is to be submitted.

» Stamp Duty charges – which depend on the Surrender Value of the Policy, are to be paid.


Discharge form has to be submitted.

» Form of Declaration of ‘No Assignment’ is to be submitted.

To Obtain a Duplicate Policy in other cases:

» The Policy Document should have been lost.

» If Assigned or Mortgaged the duplicate policy shall bear the latest Assignment that is in force as on the date of issue.

» Where the Policy is due for maturity or survival benefit within 3 years and if the sum assured is more than Rs. 25,000, on advertisement in a Local Daily /newspaper having wide calculation is to be given.

» Indemnity Bond in Form No. 3756 duly stamped and executed by the policy holder on a stamp paper of appropriate value is to be submitted.

» If sum assured exceeds Rs. 50,000, declaration by Surety having sound financial status acceptable to LIC in Form No. 3807 is required.

» Duplicate Policy charges of Rs. 5 are to be paid.

» Stamp Duty charges at prevailing rates are to be paid.

What are the Tax benefits available?

Important Income Tax provisions applicable to Policyholders are:

An individual can claim rebate on premium paid on his/her life, his/her spouse, his/her children including adult children and married daughter.

Under section 88 of the Income Tax Act, certain percentage of rebate is allowed on investment in the form of insurance premium with any of the insurance company approved by IRDA. Percentage of rebate can be up to a maximum of 20% and varies depending upon the tax bracket one falls. This rebate is deductible from the tax payable by the individual. The total amount of investment in the form of insurance premium and other specified investments like PPF, NSC, etc. is restricted to Rs. 60,000 per annum.

Under Section 80 DDA, a deduction up to Rs. 40,000 p.a is allowed from gross total income, when a contribution or deposit is made with the LIC for the maintenance of a handicapped dependent.

Under Section 80 CCC, a deduction up to a maximum of Rs. 10,000 per annum is allowed from gross total income. Any sum received under insurance policy including maturity bonus etc., is non-taxable. The exceptions to this are Keyman Insurance.

What is surrender value?

The cash value payable by the insurance company on termination of the policy contract at the desire of Policyholder but before the expiry term is known as Surrender Value. A policy can be surrendered, provided the policy is kept in force at least three years. The bonus will be added, provided the policy was in force for at least 5 years, i.e., premiums should have been paid for 5 years and five years should have been completed from the date of commencement of the Policy (this condition is not applicable in respect to claims by death.)

How much life insurance should an individual own?

It is very difficult to place a monetary value on human life. Theoretically, therefore an individual can have life policies for any amount. However, in practice, it is determined based on the needs for insurance and the capacity to pay premiums regularly. Though there is no thumb rule to arrive at the exact amount of insurance, it is determined by taking six times of the annual income of the person, if such income is not fluctuating. If the income is fluctuating, it is desirable to work his average annual income and then determine the amount of insurance. From an individual’s standpoint, one should be able to save at least 10% of his annual income.

When does a policy acquire paid up value?

After payment of three years of premiums if subsequent premiums have not been paid under a policy, such a policy is said to have acquired a paid up value, though literally it is a lapsed policy. The paid up value is calculated by multiplying the sum assured by the ratio of number of premiums paid under the policy and the number of premiums payable under the policy. The value so arrived at, should not be less than Rs.250 excluding the accumulated bonus under such a policy. Such a reduced paid up policy will not be entitled to participate in future bonuses.

What is meant by “mortgage redemption policy”?

This life policy is designed to meet the requirements of individual borrowers to ensure that the outstanding loan is extinguished automatically in the event of the borrower’s death. The annual premiums depend on the schedule of outstanding loan amounts at the beginning of each year. On death of the borrower, the loan is liquidated straightaway by admittance of claim under the policy. Benefits are fixed and death benefit decreases with every year. Premium under the plan can also be paid in a lump sum as single premium.

What is the benefit of opting riders/add on?

Riders/add on are the additional benefits which can be added to the basic policy by paying marginal additional premium. Each company has their own set of rider and most common rider’s offers by insurers are:

» Term rider.

» Critical illness rider.

» Accidental death and dismemberment rider.

» Waiver of premium rider.


What is permanent total disablement?

Permanent total disablement means that the life assured is incapacitated to work or follow an occupation and obtain wages, compensation or profit. The following are considered to constitute such disability:

Irrecoverable loss of entire sight of both of the eyes

» amputation of both hands

» amputation of both feet

» amputation of one hand and one foot

Is there any maximum limit in sum assured for grant of accident benefits? Maximum accident benefit one can avail under all the policies, which he holds, is fixed and varies from company to company In case of LIC it is Rs. 5 lakh sum assured.

Can an individual have accident benefit alone?

No, the benefit is available only along with a plan of assurance wherein it is permissible.

What is meant by a ‘with profit plan’?

A policy issued under a with profit scheme is eligible to participate for bonus addition arising out of surplus revealed on conducting an actuarial valuation. Premium under a with profit plan is always greater than the rate for a without profit plan. That is while computing the structure of a premium table a bonus loading is made to the rate determined by the other three factors viz., Mortality, Interest and expenses.

At what intervals are actuarial valuations conducted?

Every year the policies that are in force are valued and the present value is arrived at. The assets are also valued as on that date and a comparison is made to ascertain the valuation surplus. 95% of the valuation surplus is distributed among with profit policyholders.

What is the system of bonus calculation?

LIC follows a system of reversionary addition to the sum assured at the rate per thousand of sum assured declared every year. Bonus vests with the policy if it is in force. Paid up policies are not eligible for bonus.

Disclaimer:

The above material is provided for general information only and do not constitute legal or other professional advice. This information is current at the date of publication but may be subject to change without notice and accordingly, may not be up to date at the time of viewing. Information specific to a product may be obtained from the concerned Insurer.

Higher EPFO rate to make bank FDs less attractive

Hike in interest rates on provident fund by one percentage point by the EPFO to 9.5 per cent will make fixed deposits schemes of the banks less attractive for the organized sector employees. While the retirement fund, popularly known as provident fund, will yield 9.5 per cent on deposits held with the Employees Provident Fund Organization (EPFO), those parking their funds with banks will get a maximum of 7.75 per cent on fixed deposits with maturity of three to ten years.


While the market leader State Bank of India pays 7.75 per cent on fixed deposits for maturity of eight to 10 years, largest private sector lender ICICI Bank gives the same interest rate on deposits ranging between 3 to 10 years. Senior citizens, however, get an additional rate of up to one per cent on their deposits held with the banks.

An economist at a leading private sector bank said, although the number of people contributing to EPFO is far lower than the bank account holders, there could be some diversion. However, high interest rate could drive more contribution towards EPFO, even as the lock-in period remains high in this provident fund, he said.

Industry chamber FICCI said the high rate of interest by EPFO "could also put pressure on the yield rates of some of the other competing saving instruments." Most of the public and private sector banks had raised the interest rates on fixed deposits in August following the tightening of the monetary policy by the Reserve Bank of India.

The central bank is likely to come out with mid-quarterly review of monetary policy tomorrow. Changes in the key policy rates may have a bearing on the interest rates on bank deposits.

The Central Board of Trustees (CBT), the highest decision making body of the EPFO, today decided in favour of raising the interest rate on provident fund by one percentage point to 9.5 per cent, the highest rate in the last five years. The interest rate on the provident fund deposit has been kept at 8.5 per cent since 2005-06.

The decision of the CBT to hike the interest rate, which is likely to be notified by the Finance Ministry, will directly benefit 4.71 crore subscribers.

The Learning Curve

Asset Allocation: The key to successful investing


Saving a portion of our monthly income is inherent to all Indians. This is one of the key reasons that India is among the top countries with the highest net household savings rates. All of us save in order to fulfill our planned long-term financial goals as well as for the unforeseen contingencies that may arise.

In India, saving at an early age is a mindset. As a child, we are taught to save in bank accounts and gradually, as we mature, the focus shifts to investing in fixed deposits, bonds, life insurance products etc. However, how does one realize how to deploy money amongst various financial assets to derive? Maximum benefits? There are various asset classes such as equity, bonds, fixed deposits, etc. that have different degree of risks & returns associated with them. Investing in equity has the potential to deliver highest return but comprises of highest risk too where as investing in debt may not give very high returns and the risk taken too, is not as high. It is important to assess these asset classes before investing in them. The process of selecting assets that will generate adequate returns to meet the financial goals at the desired level of risk is known as Asset Allocation.

The key objective of asset allocation is to increase the return on the invested amount while lowering Investment risk. An ideal portfolio should have a judicious mix of asset classes.

There is no asset allocation, which will universally benefit each & every individual. It needs to be customized to suit one’s profile. It is one of the most critical elements of successful investing and needs to be utilized consciously while investing.


5 easy steps to simplify asset allocation decision


Step 1: Determine your Investment Objective:

Decide the purpose for which you are investing. Investment objective of one person may be very different from that of another. For instance, the objective of a person nearing his retirement would be to ensure a regular pension and capital preservation, while that of a young professional would be to achieve capital appreciation to buy a house.

Step 2: Determine your Risk Appetite:

Few factors that affect risk appetite are life stage, net worth, income and past investment experience. An individual who is young has more disposable income and higher risk appetite and may opt to invest in assets with higher risks. He will follow an aggressive investment strategy. Risk appetite of someone who has suffered huge losses in the market will be very low.


Step 3: Determine the Time Horizon of your investment:

An individual will retain his investment for the period. This affects the level of risk that one can undertake. If the investment period is longer, the risk is equally low. The investment period broadly depends upon two parameters, namely, the objective of the investment and the financial resources available at an individual’s disposal. E.g. if the investment objective is to accumulate for your 10 year old child’s wedding, then one can invest in assets with higher risk to generate higher returns. Individuals nearing the age of retirement will take less risk as their period for investing is much shorter. Furthermore, someone who has a reserve sum to take care of any unforeseen event will have a longer investment period as compared to someone who relies on his current income to fulfill all his needs.


Step 4: Select a Diversified Portfolio:

Based on your predetermined goal, risk tolerance and period of investment select a diversified portfolio, which includes various assets, classes namely equity, bond & money market instruments. E.g. if one’s objective is to meet near term obligations, then he may be better off by investing in money market instruments.
An aggressive investor with high-risk appetite or long-term horizon may have his portfolio skewed heavily towards equities. On the contrary, a conservative investor with low risk appetite or short-term time horizon may have his portfolio skewed towards bonds.


Step 5: Rebalancing your Asset Allocation:

One should not frequently change the asset allocation based on market conditions. It is wise to review asset allocation annually; however, rebalancing should be done only if the investment objective or risk appetite undergoes a change.

Always remember that for reaping true benefit out of any financial investment, it is essential to understand one’s investment objective, risk appetite and investment horizon. It is also important to follow a disciplined approach towards investments and avoid timing the market.

It must be noted that life insurance should be considered as a unique asset class in itself, since it creates an asset in case of an eventuality like death while also providing a lump sum amount to meet future goals. ULIPs are well crafted to address the varying asset allocation needs of individuals. They offer a basket of funds with different asset compositions to suit individual’s profile. While choosing a fund option, it is essential to assess one’s asset allocation requirements and accordingly make investments to optimize returns while assuming comfortable levels of risk. Further, the flexibility to switch fund options should be resorted to in the light of changing individual’s needs and not as a tool to speculate market movements.