Life insurance firms are shifting their focus from unit-linked insurance plans (Ulips) to traditional products such as endowment, money-back, pension and term plans.
After the fall in the stock markets last year, insurance firms felt that an equity-dominated portfolio was not balanced. Therefore, many firms are changing their product mix and moving towards traditional policies.
Reliance Life, Bajaj Allianz and state-owned Life Insurance Corporation of India are moving fast towards a traditional policy dominated product mix. For Bajaj Allianz, the share of Ulips is likely to be around 70 per cent this fiscal against over 80 per cent a year ago. Ulips constitute 65 per cent of LIC’s total sales.
Last fiscal, Ulips formed around 90 per cent of Reliance Life’s product mix. This has fallen to around 50 percent in the quarter ended June. However, for the full fiscal, the company expects the proportion of Ulips to be 60 per cent.
“From a customer perspective, traditional products are more relevant for middle and low-income groups in rural areas and smaller cities. So, as we increase our penetration in those areas, sale of traditional policies will be higher,” said Mayank Bathwal, CFO of Birla Sun Life Insurance.
In May, Birla Sun Life had launched endowment plans to cater to the increased demand for traditional products. Last year, Ulips had formed 90 per cent of its product mix, “which is likely to change soon”, Bathwal said.
Industry players said the stringent norms stipulated by the Insurance Regulatory and Development Authority for unit-linked hybrid products are also compelling insurers to change their product mix.
The new guidelines, which will come into force from September, will cap commission charges — a motivating factor for agents to sell certain category of policies. The first year commission charge for Ulips has been reduced to 10-15 per cent from 35 per cent. However, commissions for selling traditional plans are still 30-35 per cent.
According to provisional data by the Life Insurance Council, a representative body of life insurers in India, new business premium income during the last fiscal rose 25 per cent to Rs 1.09 trillion. Around 90 per cent of the premium came from Ulips.
Monday, July 19, 2010
Sunday, July 18, 2010
Stiff target set for insurance agents
The insurance regulator has clamped down on agents to check the rise in policy lapses.
After tightening the regulations for unit-linked insurance plans (Ulips), the insurance regulator has suggested certain performance criteria for agents.
Under the new norms, agents will be getting lower commission on Ulips sold from September this year. According to the regulator’s latest suggestions, the agents may have to part with the commission earned on sold policies if subscribers do not pay the renewal premiums in time.
Part of the first-year commission will be withheld and paid based on persistency in later years,” says the regulator. The agency license may also not be renewed if the average annual persistency ratio is less than 50 per cent.This means agents will have to be more prompt in providing after-sales services.
According to the performance parameters prescribed by the regulator, agents will have to sell a minimum of 20 life insurance policies and procure a minimum first-year premium of Rs 1,50,000 every year. This will prove to be a difficult task for agents.
At present, an agent has to sell 12 policies and procure Rs 1,00,000 as first-year premium to keep his/her license in force. Many people cannot even meet this target, which is why the industry is fraught with large-scale agent attrition leading to high growth in orphan and lapsed policies. The proposed measures by the regulator, will force many agents to quit the industry.
In an exposure draft on persistency of life insurance policies, the regulator noted that lapses for private insurers had increased steadily within the first five years of selling a policy.
The lapse rate was the highest for policies sold through brokers, followed by corporate agencies, tied agents and bancassurance. In the case of tied agents, the lapse rate after the first five years of policy sales is as high as 50 per cent.
To stop this high rate of policy lapses, the regulator is considering putting in place a regulatory framework for the performance of insurance agents.
After tightening the regulations for unit-linked insurance plans (Ulips), the insurance regulator has suggested certain performance criteria for agents.
Under the new norms, agents will be getting lower commission on Ulips sold from September this year. According to the regulator’s latest suggestions, the agents may have to part with the commission earned on sold policies if subscribers do not pay the renewal premiums in time.
Part of the first-year commission will be withheld and paid based on persistency in later years,” says the regulator. The agency license may also not be renewed if the average annual persistency ratio is less than 50 per cent.This means agents will have to be more prompt in providing after-sales services.
According to the performance parameters prescribed by the regulator, agents will have to sell a minimum of 20 life insurance policies and procure a minimum first-year premium of Rs 1,50,000 every year. This will prove to be a difficult task for agents.
At present, an agent has to sell 12 policies and procure Rs 1,00,000 as first-year premium to keep his/her license in force. Many people cannot even meet this target, which is why the industry is fraught with large-scale agent attrition leading to high growth in orphan and lapsed policies. The proposed measures by the regulator, will force many agents to quit the industry.
In an exposure draft on persistency of life insurance policies, the regulator noted that lapses for private insurers had increased steadily within the first five years of selling a policy.
The lapse rate was the highest for policies sold through brokers, followed by corporate agencies, tied agents and bancassurance. In the case of tied agents, the lapse rate after the first five years of policy sales is as high as 50 per cent.
To stop this high rate of policy lapses, the regulator is considering putting in place a regulatory framework for the performance of insurance agents.
Saturday, July 17, 2010
Axis Triple Advantage Fund NFO- A Review
SEBI has recently questioned the Mutual Fund houses for their similar & repeated products offering but the introduction of new funds is not stopping. Another mutual fund house has decided to come out with its NFO or New Fund Offer. The Axis Mutual Fund House has launched its NFO or New Fund Offer called the Axis Triple Advantage Fund NFO
In this article, I will analyse how good is this Axis Triple Advantage Fund NFO, whether this Axis Triple Advantage Fund offers anything new or unique for the investors and whether the investors should invest in Axis Triple Advantage Fund .
Axis Triple Advantage Fund NFO: Review Analysis & Details
Let us begin with some basic details about Axis Triple Advantage Fund.
What are the NFO dates for Axis Triple Advantage Fund?
The NFO period for Axis Triple Advantage Fund will open on 30th June 2010 and will close on 27th July 2010. Though nothing is specified about the regular buying and redemption start date of this Mutual fund, it is expected that it will be around after a month from the close of NFO, as is the standard.
What is so unique about this Axis Triple Advantage Fund?
Investors should note that the investment principles of this fund are to seek long terms capital appreciation and hence, as per the fund information, the investors are expected to stay invested for long. Nevertheless, please note that this does not guarantee any returns.
Now the unique thing about this fund is that it is offering you a diversified investment opportunity, where your invested capital money will be split across into 3 and invested into the following in the mentioned proportion:
- Shares/Equity and related instruments - 30-40%
- Debt Instruments (Fixed Income Securities) - 30-40%
- Gold ETF's or Gold Exchange Traded Funds - 20-30%
So overall, this Axis Triple Advantage Fund seems to be offering a good mix of 3 variety of products. The proportion of allocation also seems to be good enough. However, I think the proportion of allocation might change at the sole discretion of the mutual fund managers.
During NFO, the units of this Fund will cost Rs 10 per unit.
Ideally speaking, this fund should be looked upon by the investors who want a mix of equity, debt and gold in their investment portfolio, but want to keep the headache off by doing it themselves and are ready to trust a fund manager to do that. This Axis Triple Advantage Fund will be good option for such investors. However, one thing to note is that just because there is a lot of diversification, it does not mean that food returns are guaranteed.
The risk part remains. What if you invest 10,000 in this fund? The fund managers buy equity worth 3500, debt worth 3500 and gold worth 3000. After 5 years, the returns from equity are down by 30%, returns from debt are up by 10%, and returns from gold are up by 15%. Equity portion will then stand at 2500, Debt at 3850 and Gold at 3450. Therefore, your net value will be 9,800 - i.e. less than your invested 10K.
Now the above is only an example to illustrate that just by investing in a diversified fund does not guarantee returns. In addition, the more different instruments one invests in, the more brokerage charges and commission is to be paid. That adds to the cost and reduces the profit and returns. Investors should keep these things in mind while making investments in any funds or any financial products.
Are there any alternatives to Axis Triple Advantage Fund?
Yes, Taurus Fund House has also come out with a similar product: Taurus MIP Advantage Fund NFO: However, there may exist other products.
Another option to consider is buying these different financial assets on your own. Then you will have to take the buy sell decisions and timing them will be your responsibility.
Mr. Chandresh Nigam and Mr. Ninad Deshpande will be the fund managers.
The Axis Triple Advantage Fund will be benchmarked to a composite S&P CNX Nifty, CRISIL Composite Bond Fund Index and INR Price of Gold
Minimum Investment:
Purchases: Rs. 5000/- and in multiple of Re. 1 thereafter.
SIP or Systematic Investment Plan is available. - No Info
No Tax Benefit is available in the Axis Triple Advantage Fund
Investment Options for Axis Triple Advantage Fund:
- Growth
- Dividend (Payout and Reinvestment)
The entry load for Axis Triple Advantage Fund is as follows:
Entry Load for Axis Triple Advantage Fund:
Zero Entry Load
Exit Load for Axis Triple Advantage Fund:
1% if the amount sought to be redeemed or switched out is invested up to 1 year from date of allocation.
Final Thoughts about the Axis Triple Advantage Fund?
This fund can be a good investment for investors willing to bet on the skills of the Axis Fund Managers and who believe that diversification can offer good returns as well as risk control.
In this article, I will analyse how good is this Axis Triple Advantage Fund NFO, whether this Axis Triple Advantage Fund offers anything new or unique for the investors and whether the investors should invest in Axis Triple Advantage Fund .
Axis Triple Advantage Fund NFO: Review Analysis & Details
Let us begin with some basic details about Axis Triple Advantage Fund.
What are the NFO dates for Axis Triple Advantage Fund?
The NFO period for Axis Triple Advantage Fund will open on 30th June 2010 and will close on 27th July 2010. Though nothing is specified about the regular buying and redemption start date of this Mutual fund, it is expected that it will be around after a month from the close of NFO, as is the standard.
What is so unique about this Axis Triple Advantage Fund?
Investors should note that the investment principles of this fund are to seek long terms capital appreciation and hence, as per the fund information, the investors are expected to stay invested for long. Nevertheless, please note that this does not guarantee any returns.
Now the unique thing about this fund is that it is offering you a diversified investment opportunity, where your invested capital money will be split across into 3 and invested into the following in the mentioned proportion:
- Shares/Equity and related instruments - 30-40%
- Debt Instruments (Fixed Income Securities) - 30-40%
- Gold ETF's or Gold Exchange Traded Funds - 20-30%
So overall, this Axis Triple Advantage Fund seems to be offering a good mix of 3 variety of products. The proportion of allocation also seems to be good enough. However, I think the proportion of allocation might change at the sole discretion of the mutual fund managers.
During NFO, the units of this Fund will cost Rs 10 per unit.
Ideally speaking, this fund should be looked upon by the investors who want a mix of equity, debt and gold in their investment portfolio, but want to keep the headache off by doing it themselves and are ready to trust a fund manager to do that. This Axis Triple Advantage Fund will be good option for such investors. However, one thing to note is that just because there is a lot of diversification, it does not mean that food returns are guaranteed.
The risk part remains. What if you invest 10,000 in this fund? The fund managers buy equity worth 3500, debt worth 3500 and gold worth 3000. After 5 years, the returns from equity are down by 30%, returns from debt are up by 10%, and returns from gold are up by 15%. Equity portion will then stand at 2500, Debt at 3850 and Gold at 3450. Therefore, your net value will be 9,800 - i.e. less than your invested 10K.
Now the above is only an example to illustrate that just by investing in a diversified fund does not guarantee returns. In addition, the more different instruments one invests in, the more brokerage charges and commission is to be paid. That adds to the cost and reduces the profit and returns. Investors should keep these things in mind while making investments in any funds or any financial products.
Are there any alternatives to Axis Triple Advantage Fund?
Yes, Taurus Fund House has also come out with a similar product: Taurus MIP Advantage Fund NFO: However, there may exist other products.
Another option to consider is buying these different financial assets on your own. Then you will have to take the buy sell decisions and timing them will be your responsibility.
Mr. Chandresh Nigam and Mr. Ninad Deshpande will be the fund managers.
The Axis Triple Advantage Fund will be benchmarked to a composite S&P CNX Nifty, CRISIL Composite Bond Fund Index and INR Price of Gold
Minimum Investment:
Purchases: Rs. 5000/- and in multiple of Re. 1 thereafter.
SIP or Systematic Investment Plan is available. - No Info
No Tax Benefit is available in the Axis Triple Advantage Fund
Investment Options for Axis Triple Advantage Fund:
- Growth
- Dividend (Payout and Reinvestment)
The entry load for Axis Triple Advantage Fund is as follows:
Entry Load for Axis Triple Advantage Fund:
Zero Entry Load
Exit Load for Axis Triple Advantage Fund:
1% if the amount sought to be redeemed or switched out is invested up to 1 year from date of allocation.
Final Thoughts about the Axis Triple Advantage Fund?
This fund can be a good investment for investors willing to bet on the skills of the Axis Fund Managers and who believe that diversification can offer good returns as well as risk control.
Lord, bless us but invest not - Court denies deities right to open demat accounts Lord
The gods cannot play the stock markets.
That’s the upshot of a verdict handed down today by Bombay High Court which threw out a petition seeking to open demat trading accounts in the names of Lord Ganesh — the popular god of wealth and prosperity — and four avatars of lesser deities.
That’s the upshot of a verdict handed down today by Bombay High Court which threw out a petition seeking to open demat trading accounts in the names of Lord Ganesh — the popular god of wealth and prosperity — and four avatars of lesser deities.The petition was moved by a Sangli-based private religious trust named Ganpati Panchayatam Sansthan. The other four deities are Chintamaneshwardev, Chintamaneshwaridevi, Suryanarayandev and Laxminarayandev.
The trust had contended that if the deities could be granted PAN cards — a key tax-filing requirement for the large assets that temples and trusts own in the name of the ruling deities — they could not be barred from trading on the bourses. A PAN card is a basic requirement for opening a demat account.
The National Securities Depository Ltd (NSDL) had rejected the private religious trust’s request to open demat accounts in the name of the deities, sparking the unusual case where the gods — or at least the mortals who manage their considerable assets — started showing an undue interest in playing the markets.
“Trading in shares on the stock markets requires certain skills and expertise and to expect this from deities would not be proper,” said Justice P.B. Majumdar and Rajendra Sawant while tossing out the petition that challenged NSDL’s refusal to open demat accounts in the names of the five deities.
The trust had applied for the five demat accounts in the names of the deities through a private bank.
In its petition, the trust maintained that verdicts handed down by the Supreme Court and several high courts had upheld the right of deities to own property.
Uday Varunjkar, the counsel for the trust, said that shares, debentures and mutual fund units were also regarded as property under income-tax laws and, therefore, the deities could not be barred from placing their celestial bets on stocks.
NSDL chose to rely on a legal quibble to fob off the Patwardhans and their pantheon of deities.
S. Ganesh, a senior officer of NSLD, filed an affidavit in court saying only deities of registered public trusts could acquire property.
He argued that the Sangli-based trust was a private religious trust that was not registered under the Bombay Public Trust Act. Therefore, it could not acquire property in the name of the deities.
The NSDL official said private trusts could own or acquire property, including shares and debentures, in the name of trustees but not in the name of gods.
It is not known whether the deity of any public trust has ever applied for a demat account to trade in shares.
To open a demat account, the prospective account holder needs to show proof of identity (passport, driving licence, ID card issued by a central or state government, membership of professional bodies or credit cards), proof of address, passport size photograph and a copy of the PAN card.
It is not known how many of these documents the trust was able to submit along with its application for opening demat accounts on behalf of the gods.
A couple of years ago, NSDL was sucked into a controversy when it was accused of conniving with several banks and unscrupulous people to open bogus accounts to help certain people corner share allotments arising from initial public offerings (IPOs).
The racket was unearthed in 2005 and had run unchecked for two years. Over 40,000 fake demat accounts had been opened by the banks and the two depositories — NSDL and Central Depository Services (India) Ltd.
Both depositories were indicted in two interim reports that were produced during former Sebi chairman M. Damodaran’s tenure. NSDL was cleared of all charges after C.B. Bhave took over as Sebi chairman.
source : The Telegraph,Kolkata. 17/07/2010
Wednesday, July 14, 2010
Bad Time for Mediclaim Policy Holder's Too
If you have a mediclaim policy that entitles you to cashless facilities, here is some bad news. You will no longer be able to get these facilities at high-end hospitals like Apollo, Fortis, Ganga Ram, Max or Medicity in Delhi, the national capital region (NCR) and the metros of Mumbai, Bangalore and Chennai.
All insurance companies providing mediclaim facilities, a cashless health insurance, have stopped direct payment of treatment charges to 150-odd high-end hospitals in Delhi and NCR alone from July 1. If you now go to any of these hospitals, you will have to pay from your pocket despite having a valid mediclaim policy with all premiums paid. You will then have to reclaim the amount from the insurer with no guarantee that the entire amount would be reimbursed.
At least 18 insurance companies, including the four public sector entities, have taken off more than 150 hospitals in Delhi and NCR from their designated list for the cashless facility. This facility will now be available at only 100-odd hospitals, none of them from the big chains. There has been a similar axing of hospitals from the list in other cities.
What has forced these insurers to take this step is the fact that they have been bleeding badly. They are making an estimated loss of Rs 1,500 crore annually on a yearly premium collection of Rs 6,000 crore on mediclaim policies across the country,
These 18 insurance companies had so far been providing cashless services at over 3,000 hospitals pan-India. However, a recent study carried out by the TPAs found that only 350 of them or roughly 11% were consuming more than 80% of the total claims.
It was also found that customers were overcharged for each hospitalization, irrespective of the treatment, and were left with very little funds for their next treatment. This is intended to discipline the hospitals who are overcharging a customer.
Segar Sampath of the New India Assurance Co Ltd said, "TPAs have been asked to convey the fresh list of hospitals to individual policyholders as also the new packages available."
These insurers have worked out treatment packages and depending on the hospital's infrastructure, the lower or higher rate will be applicable.
For instance, hospitals that are part of the big chains charged Rs 58,000 on average for a gall bladder operation. Now, according to the new package deal, a hospital would be offered anywhere between Rs 30,000 and Rs 48,000 for the same. Similarly, for a cataract operation, the average payout was Rs 35,000. The new deal provides for a maximum of Rs 24,000, while it would be Rs 14,000 if the surgery were done at a smaller set-up.
The insurers, said have been negotiating with the big chains for the last six months in an attempt to persuade them to accept the packages. So far, however, none of them has responded positively, forcing the insurers to take this drastic step.
The insurers have identified the four metros of Delhi, Mumbai, Bangalore and Chennai to start with the new package deals. The scheme would then be rolled out across the country. These four metros account for almost 50% of the Rs 6,000 crore annual mediclaim premium collected by the 18 insurers. Overall, the premium collection on health insurance is estimated to be upwards of Rs 9,000 crore.
All insurance companies providing mediclaim facilities, a cashless health insurance, have stopped direct payment of treatment charges to 150-odd high-end hospitals in Delhi and NCR alone from July 1. If you now go to any of these hospitals, you will have to pay from your pocket despite having a valid mediclaim policy with all premiums paid. You will then have to reclaim the amount from the insurer with no guarantee that the entire amount would be reimbursed.
At least 18 insurance companies, including the four public sector entities, have taken off more than 150 hospitals in Delhi and NCR from their designated list for the cashless facility. This facility will now be available at only 100-odd hospitals, none of them from the big chains. There has been a similar axing of hospitals from the list in other cities.
What has forced these insurers to take this step is the fact that they have been bleeding badly. They are making an estimated loss of Rs 1,500 crore annually on a yearly premium collection of Rs 6,000 crore on mediclaim policies across the country,
These 18 insurance companies had so far been providing cashless services at over 3,000 hospitals pan-India. However, a recent study carried out by the TPAs found that only 350 of them or roughly 11% were consuming more than 80% of the total claims.
It was also found that customers were overcharged for each hospitalization, irrespective of the treatment, and were left with very little funds for their next treatment. This is intended to discipline the hospitals who are overcharging a customer.
Segar Sampath of the New India Assurance Co Ltd said, "TPAs have been asked to convey the fresh list of hospitals to individual policyholders as also the new packages available."
These insurers have worked out treatment packages and depending on the hospital's infrastructure, the lower or higher rate will be applicable.
For instance, hospitals that are part of the big chains charged Rs 58,000 on average for a gall bladder operation. Now, according to the new package deal, a hospital would be offered anywhere between Rs 30,000 and Rs 48,000 for the same. Similarly, for a cataract operation, the average payout was Rs 35,000. The new deal provides for a maximum of Rs 24,000, while it would be Rs 14,000 if the surgery were done at a smaller set-up.
The insurers, said have been negotiating with the big chains for the last six months in an attempt to persuade them to accept the packages. So far, however, none of them has responded positively, forcing the insurers to take this drastic step.
The insurers have identified the four metros of Delhi, Mumbai, Bangalore and Chennai to start with the new package deals. The scheme would then be rolled out across the country. These four metros account for almost 50% of the Rs 6,000 crore annual mediclaim premium collected by the 18 insurers. Overall, the premium collection on health insurance is estimated to be upwards of Rs 9,000 crore.
Monday, July 5, 2010
SC issues notices to Centre, insurers over ULIPs
The Supreme Court issued notices to the Centre and 14 life insurers on a petition by market regulator Sebi seeking transfer of cases from High Courts relating to Unit Linked Insurance Products (ULIPs).
Sebi is locked in a turf battle with insurance regulator IRDA over who has jurisdiction over ULIPs.
A bench headed by Justice S H Kapadia also sought response from some PIL litigants who have raised the issue concerning ULIPs in various High Courts.
During a brief hearing, when the petition filed by Sebi was mentioned by Attorney General G E Vahanvati, the bench questioned Sebi's move to file the petition before the apex court.
Sebi is in Mumbai, insurance companies are in Mumbai, LIC is in Mumbai," the bench remarked and indicated that the Bombay High Court could have heard the matter.
Vahanvati, in his submission, said that the issue of jurisdiction too has to be settled by the apex court.
The bench said, basically, both the regulators are fighting and wondered, "why not appoint a super regulator." It later posted the matter for hearing on July 8.
The dispute over jurisdiction of ULIPs between Sebi and IRDA snowballed into a major controversy after the market regulator banned 14 life insurers, including those belonging to SBI (SBIN.NS : 2280.1 -17.05 ) and Reliance Anil Ambani Group, from raising any further money from ULIPs unless they are registered with the market watchdog.
Responding to Sebi's directive, IRDA asked insurance companies to ignore the order of the market regulator and continue with business as usual.
Amid the conflicting orders, the Finance Ministry brokered peace between the two regulators and asked them to jointly seek legally binding order from an "appropriate" court over jurisdiction on ULIPs. Till then, status quo ante was restored.
Following the government directive, Sebi allowed insurers to raise money from existing ULIPs, but asked them not to issue fresh ULIPs after April 9, the date when it issued the order banning 14 life insurance companies from raising funds through ULIPs.
ULIPs are insurance products but part of the premium raised through them is invested in stock market. While Sebi regulates the stock market, the working of the insurance companies is overseen by IRDA.
Sebi is locked in a turf battle with insurance regulator IRDA over who has jurisdiction over ULIPs.
A bench headed by Justice S H Kapadia also sought response from some PIL litigants who have raised the issue concerning ULIPs in various High Courts.
During a brief hearing, when the petition filed by Sebi was mentioned by Attorney General G E Vahanvati, the bench questioned Sebi's move to file the petition before the apex court.
Sebi is in Mumbai, insurance companies are in Mumbai, LIC is in Mumbai," the bench remarked and indicated that the Bombay High Court could have heard the matter.
Vahanvati, in his submission, said that the issue of jurisdiction too has to be settled by the apex court.
The bench said, basically, both the regulators are fighting and wondered, "why not appoint a super regulator." It later posted the matter for hearing on July 8.
The dispute over jurisdiction of ULIPs between Sebi and IRDA snowballed into a major controversy after the market regulator banned 14 life insurers, including those belonging to SBI (SBIN.NS : 2280.1 -17.05 ) and Reliance Anil Ambani Group, from raising any further money from ULIPs unless they are registered with the market watchdog.
Responding to Sebi's directive, IRDA asked insurance companies to ignore the order of the market regulator and continue with business as usual.
Amid the conflicting orders, the Finance Ministry brokered peace between the two regulators and asked them to jointly seek legally binding order from an "appropriate" court over jurisdiction on ULIPs. Till then, status quo ante was restored.
Following the government directive, Sebi allowed insurers to raise money from existing ULIPs, but asked them not to issue fresh ULIPs after April 9, the date when it issued the order banning 14 life insurance companies from raising funds through ULIPs.
ULIPs are insurance products but part of the premium raised through them is invested in stock market. While Sebi regulates the stock market, the working of the insurance companies is overseen by IRDA.
Sebi tightens norms for fund distributors
Capital market regulator, Securities and Exchange Board of India (Sebi), which believes that unit-linked insurance plans should be supervised by it as they contain an investment component, is now gearing up to issue norms for mutual fund distributors.
Sebi chairman CB Bhave has indicated that Sebi will be coming up with new set of guidelines for mutual fund distributors. "Guidelines for MF distributors are on the anvil,” he said speaking to reporters on the sidelines of launch of Application Supported by Blocked Amount (ASBA) by the state-owned lender, Indian Bank, in Mumbai.
It may be recalled that entry loads for mutual fund schemes had been withdrawn in August last year. These loads, paid by the investors were passed on to distributors as commissions.
Meanwhile, Sebi is unhappy over the way the ASBA is being implemented by banks. Expressing concern that ASBA is not being made available, Bhave said that banks should make the facility available at more branches in the 40 cities, which account for 80% of subscriptions. Surprisingly, only 20% of IPO investors were putting their money through ASBA. Banks must ensure that all the branches of the banks falling under those 40 cities were equipped with ASBA facility, said Bhave. The absence of the ASBA facility, in adequate number of bank branches, sub brokers of the stock exchange were feeling left out, said Bhave. Banks must ensure that all the branches of the banks falling under those 40 cities were equipped with ASBA facility, said Bhave. Talking about the benefits of ASBA, Bhave said that it has brought down refund related investor complaints.
On issue of last day bid in IPOs, Bhave said that Sebi has amended issue of capital and disclosure requirement (ICDR), and given a facility to issuers if they so choose, they can close the issue for institutional investors on day X and for other investors on day X+1.
Coming on listing norms for IPO, Bhave hinted that the Sebi was planning to bring down the closure of IPO to 7 days by December, from the currently existing timeframe of 12 days.
Sebi chairman CB Bhave has indicated that Sebi will be coming up with new set of guidelines for mutual fund distributors. "Guidelines for MF distributors are on the anvil,” he said speaking to reporters on the sidelines of launch of Application Supported by Blocked Amount (ASBA) by the state-owned lender, Indian Bank, in Mumbai.
It may be recalled that entry loads for mutual fund schemes had been withdrawn in August last year. These loads, paid by the investors were passed on to distributors as commissions.
Meanwhile, Sebi is unhappy over the way the ASBA is being implemented by banks. Expressing concern that ASBA is not being made available, Bhave said that banks should make the facility available at more branches in the 40 cities, which account for 80% of subscriptions. Surprisingly, only 20% of IPO investors were putting their money through ASBA. Banks must ensure that all the branches of the banks falling under those 40 cities were equipped with ASBA facility, said Bhave. The absence of the ASBA facility, in adequate number of bank branches, sub brokers of the stock exchange were feeling left out, said Bhave. Banks must ensure that all the branches of the banks falling under those 40 cities were equipped with ASBA facility, said Bhave. Talking about the benefits of ASBA, Bhave said that it has brought down refund related investor complaints.
On issue of last day bid in IPOs, Bhave said that Sebi has amended issue of capital and disclosure requirement (ICDR), and given a facility to issuers if they so choose, they can close the issue for institutional investors on day X and for other investors on day X+1.
Coming on listing norms for IPO, Bhave hinted that the Sebi was planning to bring down the closure of IPO to 7 days by December, from the currently existing timeframe of 12 days.
IRDA issues new stringent guidelines for Ulips
Taking extra caution, insurance regulator, Insurance Regulatory & Development Authority (Irda) based upon the insurance related data as of year ending March 31,2010 and related discussions, has issued clarifications on guidelines on unit linked products (Ulips).
All life insurers are advised that only the Ulips, which conform to these revised guidelines, shall be permitted to offer sale from July 1.
IRDA has reiterated that in case of individual products, the minimum policy term shall be five years and group products will continue to be on annually renewable basis. All linked products including pension / annuity products must have a minimum sum assured payable on death.
In case of unit-linked products providing health insurance cover, the provision of death benefit is not mandatory. In addition, no loan shall be granted under Ulips
IRDA has said partial withdrawal is allowed only after fifth policy anniversary for all Ulips except pension/annuity products. In case of unit linked pension/annuity products, no partial withdrawal shall be allowed and the insurer will convert the accumulated fund value into an annuity at maturity.
However, the insured will have the option to commute up to a maximum of one-third of the accumulated value as lump sum at the time of maturity. In the case of surrender, only up to a maximum of one-third of the surrender, value could be availed in lump sum and the remaining amount must be used to purchase an annuity.
Every top-up premium shall have a lock in period of three years from the date of payment of that top up premium. However, top-ups are not allowed during the last three years of the contract.
All life insurers are advised that only the Ulips, which conform to these revised guidelines, shall be permitted to offer sale from July 1.
IRDA has reiterated that in case of individual products, the minimum policy term shall be five years and group products will continue to be on annually renewable basis. All linked products including pension / annuity products must have a minimum sum assured payable on death.
In case of unit-linked products providing health insurance cover, the provision of death benefit is not mandatory. In addition, no loan shall be granted under Ulips
IRDA has said partial withdrawal is allowed only after fifth policy anniversary for all Ulips except pension/annuity products. In case of unit linked pension/annuity products, no partial withdrawal shall be allowed and the insurer will convert the accumulated fund value into an annuity at maturity.
However, the insured will have the option to commute up to a maximum of one-third of the accumulated value as lump sum at the time of maturity. In the case of surrender, only up to a maximum of one-third of the surrender, value could be availed in lump sum and the remaining amount must be used to purchase an annuity.
Every top-up premium shall have a lock in period of three years from the date of payment of that top up premium. However, top-ups are not allowed during the last three years of the contract.
Sunday, July 4, 2010
Tough time ahead for Ulip sellers
The new regulations may deal a body blow to unit-linked insurance plans (Ulips).
Insurers as well as insurance agents, who have so far been making big money selling Ulips, stand to lose after the new norms become effective.
Consequently, insurers are likely to jack up the minimum premium payable on Ulips, while insurance agents may start aggressively hawking traditional products where they will get a higher commission.
“Life insurers have higher expenses in the first year of the policy, which under the new regulations will have to be recovered over the lock-in period of five years. This will put a strain on new business,” said Deepak Sood, managing director and chief executive officer of Future Generali Life Insurance Company.
“The capping of expenses guidelines has been made very stringent and this will have far-reaching consequences,” said Kamesh Goyal, country manager and chief executive officer, Bajaj Allianz Life Insurance Company.
“Small regular premium (Ulips) policies will become unviable. A large proportion of people who were paying a premium of less than Rs 15,000 or so a year will suffer badly. I feel it should be changed and linked to the premium amount. Small-ticket policies of less than Rs 20,000 a year should have higher allowance to make them viable. The difference in gross and net return for this set of policies at the end of the fifth year should be 5.5 per cent (against 4 per cent prescribed in the new regulations),” he added.
“Acquisition of small-ticket policies will become costlier for insurers and hence it is very likely that insurance companies may increase the threshold premium level in Ulips,” agreed Gorakhnath Agarwal, chief actuary, Future Generali Life Insurance Company.
“The capping of charges will affect the (profit) margins of life insurance companies,” insurance sector researchers at Edelweiss Securities Limited said in a report. “The capping of surrender charges is a bigger blow compared with the difference in gross and net yield (return) because it would not only restrict the ability to generate revenue, but also raise the persistency risk borne by insurers,” the report said.
Until now, surrender of Ulips within the first three years would attract hefty deductions — often nothing is returned if the policy is surrendered in the first year. The new regulations have pegged surrender charges in the first year to a maximum of Rs 3,000 (in case of annual premium less than Rs 25,000) and Rs 6,000 (in case of annual premium above Rs 25,000).
“The new regulations on surrender charges will force insurers to trim the commission paid to agents,” said Agarwal.
He added that the increase in minimum sum assured in case of Ulips would reduce insurers’ income from fund management charges because they would have to allocate a higher percentage of premiums towards mortality charges.
“Commission levels and shareholders’ margins are among the lowest in India when compared with other Asian countries. There has to be a fair return for all stakeholders concerned,” said V. Srinivasan, chief financial officer, Bharti Axa Life Insurance Company.
Insurers also feel that lower surrender charges will lead to higher policy surrenders because policyholders will view Ulips as short-term investment instrument.
Insurers as well as insurance agents, who have so far been making big money selling Ulips, stand to lose after the new norms become effective.
Consequently, insurers are likely to jack up the minimum premium payable on Ulips, while insurance agents may start aggressively hawking traditional products where they will get a higher commission.
“Life insurers have higher expenses in the first year of the policy, which under the new regulations will have to be recovered over the lock-in period of five years. This will put a strain on new business,” said Deepak Sood, managing director and chief executive officer of Future Generali Life Insurance Company.
“The capping of expenses guidelines has been made very stringent and this will have far-reaching consequences,” said Kamesh Goyal, country manager and chief executive officer, Bajaj Allianz Life Insurance Company.
“Small regular premium (Ulips) policies will become unviable. A large proportion of people who were paying a premium of less than Rs 15,000 or so a year will suffer badly. I feel it should be changed and linked to the premium amount. Small-ticket policies of less than Rs 20,000 a year should have higher allowance to make them viable. The difference in gross and net return for this set of policies at the end of the fifth year should be 5.5 per cent (against 4 per cent prescribed in the new regulations),” he added.
“Acquisition of small-ticket policies will become costlier for insurers and hence it is very likely that insurance companies may increase the threshold premium level in Ulips,” agreed Gorakhnath Agarwal, chief actuary, Future Generali Life Insurance Company.
“The capping of charges will affect the (profit) margins of life insurance companies,” insurance sector researchers at Edelweiss Securities Limited said in a report. “The capping of surrender charges is a bigger blow compared with the difference in gross and net yield (return) because it would not only restrict the ability to generate revenue, but also raise the persistency risk borne by insurers,” the report said.
Until now, surrender of Ulips within the first three years would attract hefty deductions — often nothing is returned if the policy is surrendered in the first year. The new regulations have pegged surrender charges in the first year to a maximum of Rs 3,000 (in case of annual premium less than Rs 25,000) and Rs 6,000 (in case of annual premium above Rs 25,000).
“The new regulations on surrender charges will force insurers to trim the commission paid to agents,” said Agarwal.
He added that the increase in minimum sum assured in case of Ulips would reduce insurers’ income from fund management charges because they would have to allocate a higher percentage of premiums towards mortality charges.
“Commission levels and shareholders’ margins are among the lowest in India when compared with other Asian countries. There has to be a fair return for all stakeholders concerned,” said V. Srinivasan, chief financial officer, Bharti Axa Life Insurance Company.
Insurers also feel that lower surrender charges will lead to higher policy surrenders because policyholders will view Ulips as short-term investment instrument.
Thursday, July 1, 2010
Base rate - Understand why your EMI will not change
Starting July 1 2010, all banks in India will be moving to a "base rate" regime. What does this mean for you and how does it affect your existing borrowings? Here I help clarify some of these questions.
What is the base rate?
When you borrow money to buy a house or car or electrical appliance, there is an interest rate that you have to pay to the lender. The base rate is the minimum rate that a bank will lend money at. Think of it as a floor below which RBI will not allow banks to lend to you.
Previously, banks used to price the loans they offered you on a complicated system called benchmark prime lending rate (BPLR). Each bank has its own BPLR methodology, which made it difficult for borrowers to compare rates across banks. Now, with the base rate in place, it will be easier for all of us to compare across banks and to get a more transparent sense of how the interest rate for the loan is being arrived at.
Is my interest rate going to be cheaper? Will my EMI change?
The most important thing to keep in mind is that the cost of money is not changing, i.e., if your car loan cost about 12% or home loan cost 9%, this rate of interest charged to you will be no different going forward. It is just that the method used to arrive at this will be clearer to you. Therefore, interest rates are not coming down because of this base rate implementation.
Following on from this, your EMI on an existing loan is also not going to change. You will continue to pay whatever you were paying up to last month in future months as well.
Should I change to a bank with a lower base rate?
As I said above, the cost of money is not changing. Most banks will continue to charge you a very similar rate of interest as they did before. Just because one bank has a base rate of 7.5% and another has, a rate of 8% does not mean you should switch to the bank with the lower rate. On top of this base rate will be added an additional amount of interest that they bank will charge you to cover its cost of doing business with you, and some compensation for the risk its taking in lending to you. Therefore, after all these additions, it is unlikely that the lending rate that a bank will be charging to you will be any different to the rate being charged by your current bank.
You will see no major advantage to shifting from one bank to another.
How does the base rate affect my pre-existing loan?
Nothing is going to change for existing loans. They will continue as is. As mentioned above, interest rates are not changing in the economy. However, when your loan comes up for renewal, then it will be priced using the base rate formula.
Will the base rate remain fixed forever?
No, the RBI has given guidelines to banks to adjust their base rates depending upon the prevailing market conditions and interest rate policies. Expect to see banks update their base rates every few months if that is required. Banks will then communicate this to all their clients.
What is the base rate?
When you borrow money to buy a house or car or electrical appliance, there is an interest rate that you have to pay to the lender. The base rate is the minimum rate that a bank will lend money at. Think of it as a floor below which RBI will not allow banks to lend to you.
Previously, banks used to price the loans they offered you on a complicated system called benchmark prime lending rate (BPLR). Each bank has its own BPLR methodology, which made it difficult for borrowers to compare rates across banks. Now, with the base rate in place, it will be easier for all of us to compare across banks and to get a more transparent sense of how the interest rate for the loan is being arrived at.
Is my interest rate going to be cheaper? Will my EMI change?
The most important thing to keep in mind is that the cost of money is not changing, i.e., if your car loan cost about 12% or home loan cost 9%, this rate of interest charged to you will be no different going forward. It is just that the method used to arrive at this will be clearer to you. Therefore, interest rates are not coming down because of this base rate implementation.
Following on from this, your EMI on an existing loan is also not going to change. You will continue to pay whatever you were paying up to last month in future months as well.
Should I change to a bank with a lower base rate?
As I said above, the cost of money is not changing. Most banks will continue to charge you a very similar rate of interest as they did before. Just because one bank has a base rate of 7.5% and another has, a rate of 8% does not mean you should switch to the bank with the lower rate. On top of this base rate will be added an additional amount of interest that they bank will charge you to cover its cost of doing business with you, and some compensation for the risk its taking in lending to you. Therefore, after all these additions, it is unlikely that the lending rate that a bank will be charging to you will be any different to the rate being charged by your current bank.
You will see no major advantage to shifting from one bank to another.
How does the base rate affect my pre-existing loan?
Nothing is going to change for existing loans. They will continue as is. As mentioned above, interest rates are not changing in the economy. However, when your loan comes up for renewal, then it will be priced using the base rate formula.
Will the base rate remain fixed forever?
No, the RBI has given guidelines to banks to adjust their base rates depending upon the prevailing market conditions and interest rate policies. Expect to see banks update their base rates every few months if that is required. Banks will then communicate this to all their clients.
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