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.
Thursday, September 16, 2010
Wednesday, September 1, 2010
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.
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.
Tuesday, August 24, 2010
NPS - New Pension Scheme from PFRDA India - A Simple Analysis
With the launch of New Pension Scheme (NPS) comes the government’s attempt to offer a first of its kind social security plan. The long awaited plan was finally launched on May 1, 2009 after being in the pipeline for five years. Wealth tries to answer the 10 most commonly asked questions about this scheme.You can regularly invest your money in this and get a lump sum at your retirement and a fixed monthly income for the lifetime. It will work almost the same way as Private Pension Schemes.
Features
- No upper limit of Investment
- Annual Fees of .00009% (90 paisa for Rs 10,000) for Managing the fund.
- Tax benefit under sec 80C.
- Any Indian citizen between 18 and 55 years can invest in NPS.
Who are the Fund Managers?
There will be 6 Fund houses appointed by Government to manage the funds under NPS . You can choose any one of them to be your Fund Managers. They are:
1. SBI Pension Funds Private Limited.
2. UTI Retirement Solutions Limited.
3. ICICI Prudential Pension Funds Management Company Limited.
4. Religare Pension Fund Limited.
5. IDFC Pension Funds Management Company Limited.
6. Kotak Mahindra Pension Fund Limited.
They will take all the decisions of where the money received under NPS should be invested in the best possible way considering all the rules and regulations set by PFRDA (Pension Fund Regulatory and Development Authority) .
Who are Point of Presence (POP)?
The following entities have been approved by PFRDA for appointment as Points of Presence (POPs) under the New Pension System for all citizens other than Government employees covered under NPS.
1. Allahabad Bank
2. Axis Bank Ltd
3. Bajaj Allianz General Insurance Co Ltd
4. Central Bank of India
5. Citibank N.A
6. Computer Age Management Services Private Limited
7. ICICI Bank Ltd
8. IDBI Bank Ltd
9. IL&FS Securities Services Ltd
10. Kotak Mahindra Bank Limited
11. LIC of India
12. Oriental Bank of Commerce
13. Reliance Capital Ltd
14. State Bank of Bikaner & Jaipur
15. State Bank of Hyderabad
16. State Bank of India
17. State Bank of Indore
18. State Bank of Mysore
19. State Bank of Patiala
20. State Bank of Travancore
21. The South Indian Bank Ltd
22. Union Bank of India
23. UTI Asset Management Company Ltd
Q1. What is NPS?
NPS is a pension plan where you can invest during your working years and withdraw when you retire. Until May 1 2009, the plan was available for central government employees only. However, it is now thrown open to the citizens of the country.
The current NPS launched is of tier-I type. The typical feature of tier I type plan is that it does not allow you to make any withdrawals before 60 years. However, there can be exceptions in situations like a medical emergency or buying your first house.
If you do not like the idea of this long lock in, you would need to wait for the tier II type of fund, which is yet to be launched. D Swarup, Chairman of Pension Fund Regulatory Development Authority (PFRDA), said in an interview with CNBC TV18, "The tier II plan will be out before the end of this year."
Q2. How does it work?
NPS works like a mutual fund (MF). If you want to invest in the NPS, you can choose from three funds or a mix of funds:
Fund E: This invests up to 50 per cent in the equity market
Fund C: This fund invests 100 per cent in corporate bonds
Fund G: This fund invests 200 per cent in government securities
If you are confused about how much to invest in which fund, you can leave it to the auto selection option. Through this option, 15 per cent of your money will be invested in equity, 45 per cent in corporate bond and 40 per cent in government bonds.
However, after 36 years of age, your equity and corporate bonds exposure will reduce, but it will be compensated with higher investment in government bonds. The maximum cap in government bonds will be 80 per cent. Equity and corporate bonds will have 10 per cent each investment proportion.
Q3. Whom should I approach to invest?
These funds are managed by six asset management companies (AMC): State Bank of India, UTI, ICICI Prudential, Kotak Mahindra, IDFC and Reliance, appointed by the PFRDA. Swarup says, "You have the liberty to choose, change your fund manager every year unlike mutual fund or unit linked insurance plans where you are tied to the same fund manger throughout the term of the product."
All AMCs have to follow the guidelines laid out by PFRDA since it is the ruling authority.
If you are investing in the scheme, you will have to make a compulsory contribution of minimum Rs 6,000 annually or Rs 500 every month. Swarup, says, "You also have the flexibility to make weekly contribution, but it would involve transition cost, hence it is better to stick to minimum transactions."
The minimum age to enter the scheme is 18 years and the maximum is 55 years.
Q5. What about charges?
The best thing about this scheme is the fund management charge, which is a bare minimum of 0.0009 per cent! That is nowhere close to the charges by mutual funds or unit linked insurance companies, which range from 1.5 per cent to 2.5 per cent per annum.
The application form will cost you Rs 40 and for every transaction you make, you will have to shell out Rs 20. Switching to another fund will cost you another Rs 20. However, you cannot make more than one switch every year. Apart from this, you will have to pay Rs 350 as annual maintenance charge to National Securities Depository Ltd. (NSDL), which is the central record keeping agency for all the individual pension accounts. Just like the way you pay an annual charge in maintaining your demat account, you will have to bear a cost for NPS too.
Unlike retirement plan options, NPS does not offer tax benefits under section 80 C and that is the biggest drawback of the scheme. Currently, NPS falls under Exempt-Exempt-Tax (EET) system. This means that the maturity benefits that you will receive at the retirement stage will be taxable. However, Swarup assures that NPS will be brought at par with other schemes sooner than later.
Q7. How will I be paid on retirement?
Payments will be made once you reach 60 years of age. A part of your invested money will be paid out to you as lump sum, and the balance will be mandatorily kept back as annuity. This annuity, which is the remaining amount left in your account, will be paid out to you as pension every month or year depending on what you choose. In case of your untimely death, your nomination will receive this pension.
Q8. Should I invest?
Like any other scheme, NPS has its own advantages and disadvantages. When compared to other retirement plan options such as employee provident fund (EPF), NPS is a better choice. In addition, the reason Kartik Jhaveri, Certified Financial Planner, gives is that presently, EPF gives 8 per cent interest rate. However, if you invest in NPS, you can gain better returns because of the equity portfolio of the scheme.
Nevertheless, compared to equity mutual funds, Jhaveri says that NPS has a major drawback: it restricts equity to 50 per cent. Even if the fund management charges are lower, Jhaveri still recommends a mutual fund. "If one is voluntarily investing in NPS, then he/she might as well invest in the stocks or mutual funds (MF). It will give you better returns and you have control over your investments too."
The main reason: NPS loses its charm when it comes to flexibility and taxation, he explains. Firstly, in NPS your money is locked until your retirement age unlike MFs that do not have lock-in period except equity linked mutual funds. Moreover, annuity that you will receive at the age of 60 is taxable and so are the maturity benefits. Hence, Jhaveri cautions investors to wait for a while before hurrying to invest in it.
Q9. Where can I buy the scheme?
In order to invest in NPS, you will have to open an account with any one of the 23 point of presence (PoP). The PFRDA has appointed mutual funds, financial distribution firms, insurers, banks as PoP.
Q10. What is the procedure?
1. Visit the nearest PoP to open the account.
2. You will need residence proof, permanent account number, photograph and other essential documents.
3. Once you have opened the account, you will get a permanent retirement account number (PRAN) with internet banking access details.
4. You can then begin with your transactions and start investing money.
5. You will receive physical account statement every year that will carry you transaction details, amount invested, etc.
Disclaimer: I have made efforts to ensure the accuracy of the content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.
Monday, August 23, 2010
Indian Lawmakers get two salary hikes in two weeks
The pay and benefits of Indian lawmakers have been revised several times upwards twice in two weeks, with the Union Cabinet on Monday approving a further increase in allowances to the parliamentarians, days after it had given its nod for a three-fold hike of MPs’ salary. The latest increase was necessitated to pacify a section of agitated Opposition members who had expressed dissatisfaction at the approved hike and were demanding further increase in the salary for the Members of Parliament (MPs).
The Union Cabinet has approved a hike of Rs 10,000 in allowances in the form of increased expenses for constituency and office maintenance. The three-fold base salary hike to Rs 50,000 from Rs 16,000 remained unaltered. With Monday’s hike, the MPs would be entitled to Rs 45,000 per month towards expenses for constituency and office maintenance. Besides, they also enjoy several other benefits, including free air and train tickets with companions.
The Cabinet, under Prime Minister Manmohan Singh, will bring amendments to the MPs' salary hike bill it had cleared last week. However, the latest move is also unlikely to completely pacify the agitated members, led by Lalu Prasad (Rashriyta Janata Dal) and Mulayam Singh Yadav (Samajwadi Party). They have been demanding that the MPs’ salary be pegged at Rs 80,001, a rupee more than the highest paid government employee is. A joint parliamentary committee had also recommended the Rs 80,001 figure, but the Union Cabinet had shot it down. Though the MPs are now arguing that they need the money to meet their many expenses, the politicians fail to fare well in scales of accountability and integrity.
According to Transparency International, in 2009, India was ranked 84 out 180 countries in the Corruption Perceptions Index (CPI). As per experts, the integrity rating of 3.2-3.6 of India means the country is highly corrupt. Zero (0) is the most corrupt and 10 least corrupt.
Again, a recent survey by the Global Corruption Barometer (GCB) said the common people in India have no faith in politicians and consider them most corrupt among the various groups.
The Union Cabinet has approved a hike of Rs 10,000 in allowances in the form of increased expenses for constituency and office maintenance. The three-fold base salary hike to Rs 50,000 from Rs 16,000 remained unaltered. With Monday’s hike, the MPs would be entitled to Rs 45,000 per month towards expenses for constituency and office maintenance. Besides, they also enjoy several other benefits, including free air and train tickets with companions.
The Cabinet, under Prime Minister Manmohan Singh, will bring amendments to the MPs' salary hike bill it had cleared last week. However, the latest move is also unlikely to completely pacify the agitated members, led by Lalu Prasad (Rashriyta Janata Dal) and Mulayam Singh Yadav (Samajwadi Party). They have been demanding that the MPs’ salary be pegged at Rs 80,001, a rupee more than the highest paid government employee is. A joint parliamentary committee had also recommended the Rs 80,001 figure, but the Union Cabinet had shot it down. Though the MPs are now arguing that they need the money to meet their many expenses, the politicians fail to fare well in scales of accountability and integrity.
According to Transparency International, in 2009, India was ranked 84 out 180 countries in the Corruption Perceptions Index (CPI). As per experts, the integrity rating of 3.2-3.6 of India means the country is highly corrupt. Zero (0) is the most corrupt and 10 least corrupt.
Again, a recent survey by the Global Corruption Barometer (GCB) said the common people in India have no faith in politicians and consider them most corrupt among the various groups.
Monday, July 19, 2010
Life Insurers prefer traditional policies------ Ulip honeymoon is almost over for now!
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.
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.
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.
Wednesday, June 30, 2010
Ulip rules in place - Lock-in raised, agents to get less
Ulips will now become more of an insurance product and less of an investment scheme following a change in regulatory norms proposed by the Insurance Regulatory and Development Authority (IRDA) today.
The regulator has tightened its rules for unit-linked insurance plans (Ulips) by increasing the lock-in period to five years from three years; spreading out the overall charges evenly over the lock-in period and thereby reducing the high commissions paid to agents in the first year; and hiking the minimum sum assured to 10 times the annualised premium as against five times now.
According to a circular issued by the regulator today, all Ulips sold after September 1 must comply with the changed norms.
Ulips will have a lock-in period of five years, and if a policy is surrendered or lapses because of the non-payment of premium during the lock-in period, the residuary payment will be paid only after five years from the commencement of the policy.
The high, front-ended charges in Ulips, particularly in the initial years, will go.
The regulator said, “Insurers will now distribute the overall charges in Ulips in an even fashion during the lock-in period. Charges on Ulips are mandated to be evenly distributed during the lock in period to ensure that high front ending of expenses is eliminated,” the IRDA circular stated.
Following this, insurance agents will no longer get a commission as high as 40 per cent in the first year from an Ulip.
The regulator has also increased the minimum sum assured in case of an Ulip with a regular premium payment option to 10 times the annualised premium from five times at present.
The sum assured has been increased to 10 times in cases where the policyholder is below 45 years of age. It will be seven times the annualised premium for policyholders who are aged 45 years or above.
An increase in sum assured means a larger amount of the premium will be deducted towards mortality charges, and this will lower the allocation of premium to the investment fund.
In other words, Ulips will yield lower returns to policyholders.
In single premium policies, the minimum sum assured is 1.25 times the single premium for policyholders aged below 45 years and 1.10 times for policyholders who are 45 years or more.
The regulator has tightened its rules for unit-linked insurance plans (Ulips) by increasing the lock-in period to five years from three years; spreading out the overall charges evenly over the lock-in period and thereby reducing the high commissions paid to agents in the first year; and hiking the minimum sum assured to 10 times the annualised premium as against five times now.
According to a circular issued by the regulator today, all Ulips sold after September 1 must comply with the changed norms.
Ulips will have a lock-in period of five years, and if a policy is surrendered or lapses because of the non-payment of premium during the lock-in period, the residuary payment will be paid only after five years from the commencement of the policy.
The high, front-ended charges in Ulips, particularly in the initial years, will go.
The regulator said, “Insurers will now distribute the overall charges in Ulips in an even fashion during the lock-in period. Charges on Ulips are mandated to be evenly distributed during the lock in period to ensure that high front ending of expenses is eliminated,” the IRDA circular stated.
Following this, insurance agents will no longer get a commission as high as 40 per cent in the first year from an Ulip.
The regulator has also increased the minimum sum assured in case of an Ulip with a regular premium payment option to 10 times the annualised premium from five times at present.
The sum assured has been increased to 10 times in cases where the policyholder is below 45 years of age. It will be seven times the annualised premium for policyholders who are aged 45 years or above.
An increase in sum assured means a larger amount of the premium will be deducted towards mortality charges, and this will lower the allocation of premium to the investment fund.
In other words, Ulips will yield lower returns to policyholders.
In single premium policies, the minimum sum assured is 1.25 times the single premium for policyholders aged below 45 years and 1.10 times for policyholders who are 45 years or more.
Thursday, June 17, 2010
Axis Income Saver Fund NFO: Review Analysis & Details
Here are some basic details about Axis Income Saver Fund.
What are the NFO dates for Axis Income Saver Fund?
The NFO for Axis Income Saver Fund is from May 24 2010 and will close on 16 June 2010. After that, regular buying and purchasing will commence through the end of the day NAV system.
What is so unique about this Axis Income Saver Fund?
This fund claims to be an income fund providing regular income for short duration of time in future, say 2 to 4 years period. This fund is said to have the following investment objectives: Majority of the money collected from investors of this fund will be invested in debt and money market securities and hence it will try to generate some form of regular income in form of dividend payments, coupon payments, etc. That is where the word "INCOME" is derived. A small portion of money will also be invested in the equity as well as derivative products. The purpose for this leg of investment in equity & derivative products is to generate some form of capital appreciation. Therefore, this fund will try to achieve regular income for regular payouts through majority of investment in Bonds, Debt and money market instruments, while some investment in equity & derivative products will try to get some capital appreciation.
However, from a analyst point of view, I look at it as the sole discretion of the fund managers, where they want to put the money on. As like any other funds, this fund is not promising or giving any guarantee that it will provide regular monthly or yearly income or this much percentage of returns in guaranteed if you invest so much for so long time. Overall, it looks like another mutual fund with majority of exposure to the debt instruments, hence investors willing to go for a dent-oriented scheme can put their money in. However, no guarantee of any returns.
The fund also claims "Risk Management", but in the PDF on their site, there is no explanations on how the risk will be managed or what guarantee do their risk management practices will provide. They mention about some simulation model, even have a graph showing how the simulation is beating the underlying benchmark index, but again, no guarantee of anything in future.
Some 5 different reasons are cited for investing in Axis Income Saver Fund: Exposure to Fixed Income security, quantitative asset allocation, professional money management, open ended scheme, Exposure to equities for capital appreciation. Now which mutual fund does not provide these (except for quant asset allocation)? Even for quant asset allocation and so called risk management, there is no guarantee for anything.
The Axis Income Saver Fund will be benchmarked to CRISIL MIP Blended Fund Index Ninad Deshpande will be the Fund manager for Fixed Income investments, while Pankaj Murarka will take care of equity investments.
After the NFO period, the regular buying and selling will commence from 16th July 2010.
Minimum Investment:
Purchases: Rs. 5000/- and in multiple of Re. 1 thereafter.
SIP or Systematic Investment Plan is also available.
Investment Options for Axis Income Saver Fund :
- Growth
- Dividend (Payout and Reinvestment)
No Tax Benefit is available in the Axis Income Saver Fund
The entry load for Axis Income Saver Fund is as follows:
Entry Load for Axis Income Saver Fund :
Zero Entry Load
Exit Load for Axis Income Saver Fund:
Exit within 1 years from the date of allotment - 1 %;
Exit after 1 years from the date of allotment - Nil
Final Thoughts about the Axis Income Saver Fund?
By investing in this fund, one is betting on the skills of the two fund managers. Since the fund is both a mix of debt and equity investments, the asset allocation becomes important. In addition, focus is more on the debt side.
Overall, this Axis Income Saver Fund is just another new fund offer for a hybrid kind, without anything unique that sets it apart.
What are the NFO dates for Axis Income Saver Fund?
The NFO for Axis Income Saver Fund is from May 24 2010 and will close on 16 June 2010. After that, regular buying and purchasing will commence through the end of the day NAV system.
What is so unique about this Axis Income Saver Fund?
This fund claims to be an income fund providing regular income for short duration of time in future, say 2 to 4 years period. This fund is said to have the following investment objectives: Majority of the money collected from investors of this fund will be invested in debt and money market securities and hence it will try to generate some form of regular income in form of dividend payments, coupon payments, etc. That is where the word "INCOME" is derived. A small portion of money will also be invested in the equity as well as derivative products. The purpose for this leg of investment in equity & derivative products is to generate some form of capital appreciation. Therefore, this fund will try to achieve regular income for regular payouts through majority of investment in Bonds, Debt and money market instruments, while some investment in equity & derivative products will try to get some capital appreciation.
However, from a analyst point of view, I look at it as the sole discretion of the fund managers, where they want to put the money on. As like any other funds, this fund is not promising or giving any guarantee that it will provide regular monthly or yearly income or this much percentage of returns in guaranteed if you invest so much for so long time. Overall, it looks like another mutual fund with majority of exposure to the debt instruments, hence investors willing to go for a dent-oriented scheme can put their money in. However, no guarantee of any returns.
The fund also claims "Risk Management", but in the PDF on their site, there is no explanations on how the risk will be managed or what guarantee do their risk management practices will provide. They mention about some simulation model, even have a graph showing how the simulation is beating the underlying benchmark index, but again, no guarantee of anything in future.
Some 5 different reasons are cited for investing in Axis Income Saver Fund: Exposure to Fixed Income security, quantitative asset allocation, professional money management, open ended scheme, Exposure to equities for capital appreciation. Now which mutual fund does not provide these (except for quant asset allocation)? Even for quant asset allocation and so called risk management, there is no guarantee for anything.
The Axis Income Saver Fund will be benchmarked to CRISIL MIP Blended Fund Index Ninad Deshpande will be the Fund manager for Fixed Income investments, while Pankaj Murarka will take care of equity investments.
After the NFO period, the regular buying and selling will commence from 16th July 2010.
Minimum Investment:
Purchases: Rs. 5000/- and in multiple of Re. 1 thereafter.
SIP or Systematic Investment Plan is also available.
Investment Options for Axis Income Saver Fund :
- Growth
- Dividend (Payout and Reinvestment)
No Tax Benefit is available in the Axis Income Saver Fund
The entry load for Axis Income Saver Fund is as follows:
Entry Load for Axis Income Saver Fund :
Zero Entry Load
Exit Load for Axis Income Saver Fund:
Exit within 1 years from the date of allotment - 1 %;
Exit after 1 years from the date of allotment - Nil
Final Thoughts about the Axis Income Saver Fund?
By investing in this fund, one is betting on the skills of the two fund managers. Since the fund is both a mix of debt and equity investments, the asset allocation becomes important. In addition, focus is more on the debt side.
Overall, this Axis Income Saver Fund is just another new fund offer for a hybrid kind, without anything unique that sets it apart.
Saturday, June 12, 2010
Friday, January 1, 2010
Happy New Year 2010
Wish all the viewers & Followers of “Sweet Monet" a very happy & prosperous new year 2010 in all respect.
Monday, December 28, 2009
Robin Hood of Las Vegas
Los Angeles, Dec. 27: Their three-year-old daughter, Madison, had been diagnosed with a brain tumour and they were $35,000 in debt.
But when they heard what the caller had to say, they broke down in tears, hardly able to believe their ears. He was a mysterious, high-rolling Las Vegas gambler who had been choosing needy families to give them his winnings. “You have been chosen,” the voice told the Keglers. “I’m flying you to Vegas, and I’m going to win your money for you.” What followed seemed like a dream. A stretch limousine to the airport, first-class flights and a Rolls Royce to their 8,000 square-foot suite in the Palazzo hotel. There, Kegler, 48, and his wife, 29, were met by their benefactor, who promptly staked huge amounts of his own money in a marathon card session.
It wasn’t plain sailing on the blackjack table, despite his confidence: the Keglers saw him go down hundreds of thousands of dollars before he managed to hit a winning streak and recover.
When he was $35,000 up he quit the table, and handed the proceeds to the Keglers in a giant bag of hundred dollar chips. “It completely changed everything,” said Kegler’s wife.
Since the episode a year ago, which has become part of Las Vegas folklore, rumours have swept Sin City about the identity of the secretive card player who wants to give his money away. He is even said to have been spotted handing out hundred dollar bills on the Las Vegas strip.
So who is this gambling Good Samaritan? He calls himself “Robin Hood 702” and runs a website on which he promises to milk the casinos and give the proceeds to the poor. The number 702 refers to the Las Vegas postal code area. Anyone down on their luck is invited to send in their story and, every so often, “Robin” selects someone to help.
The only criterion is that the amount they need must not exceed $50,000 — he isn’t that wealthy. As well as the Keglers, he also recently selected a woman from Charleston, South Carolina, who had run up medical bills caring for her elderly parents and won the $20,000 she needed. In April he offered to pay for a holiday in Las Vegas for the crew of the Maersk Alabama, the US ship attacked by Somali pirates.
Little is known about “Robin”. He has given television interviews, but with his face in shadow. He is known to be teetotal, white and tall. He prefers to dress in jeans and a T-shirt. Casino bosses regard him as a “whale”, one of the elite high rollers for whom nothing is too much trouble. He has won and lost six-figure sums in a single night.
His aim, he says, is simple. “I’m going to take the dark side associated with gambling and use it for good”. He plans to select another hard-up family to help in the New Year and he has plenty to choose from: there have been as many as 300 applications in a single day to his website.
I wish there is Good Samaritan like "Robin Hood702" in everyone's life. MayGod bless us all.
Source: The Telegraph,Kolkata. 28/12/2009.
Some Important Things You Must Ask Your Insurance Agent Before You Sign Him/Her On.
Buying a life insurance cover is easy, finding a sincere agent is not easy. It doesn't make your job easier that a Supreme Court verdict held that the Life Insurance Corporation of India (LIC) cannot be held accountable for its agents' actions.
Fact is, you have to depend on your agent & he identifies the right policy for you, collects the premium cheques from you when they are due, and is your insurance newscaster. In short, he is more often than not the sole link between you and the Insurance company.
There are more than 10 lakh + of them to choose from and the idea is to identify the con artists and put them at an arm's length before they get you. Their disqualification by the tens of thousands every year tells a sordid story of the ways of Insurance agents.
An unscrupulous agent could sell you the wrong policy, or lie that he got you a loaded premium or encash the premium cheque in his favour, or be untraceable when needed.
LIC won't share the blame. At the most, it will terminate the services of the agent. And he will join the ranks of more than 1 lakh agents the Corporation debars every year. The main reasons are failure to meet business quotas and alleged malpractices.
In 1995-96, LIC terminated the services of 1.17 lakh agents. But the termination will not solve your problem. It will only aggravate it, for you have to find a new agent, get hold of old records, tally the numbers and recalculate premiums.
How do you avoid these problems? By sitting him down and asking a few simple questions. How he answers them should decide whether he gets your business.
Are you from the neighborhood?
An agent knocks at the door. After the initial courtesies, ask him whether he lives in the same area as you do. That will help you verify his antecedents, contacts and standing in the profession. You could compare notes with other people in the neighbourhood and be forewarned against erratic, irresponsible agents.
However, there is a problem with over familiar agents. Don't buy insurance because you have to oblige someone. It's your money-and your life.
Are you real?
No metaphysical twist there. Just ask him if he is a professional agent-a full-timer, in other words. There are many amateurs, part-timers and proxies masquerading as authorized agents in the business, hoping to make some money on the side.
Many have less than a year's experience. Any matriculate can be an agent, and Life Insurance Companies outdated yearly business quota system encourages unprofessional oddballs into the business. Buy policies only from professional agents.
What if the agent says he is a full-timer and you are still not convinced?
In that case, ask when he is available for his clients. If it is before or after normal office hours, you can be sure he is a part-timer. Non-availability during these hours is fine only if he gives a branch number where he can be contacted during the day. Be particular to check that he is not acting on somebody's behalf.
How many years have you been in the profession?
If the answer to the last question was in the affirmative, ask him how long he has been an agent. A matriculate could get in and out of the profession inside a year. Or work for five years to qualify for renewal commissions. Sources say only about 9 per cent of LIC agents have 10 years' experience. Remember, your policy term will be longer than that.
Do you have an office?
Never mind if he works out of a room in his flat or a coop in some dilapidated building. If he has an address he calls office, he means business. If it is "at this number between 10 am and 2 pm, and after 6 pm at my residence", he is not the guy you want.
Which branch do you work for? Who is your development officer?
You know that agents work for development officers attached to a particular LIC branch. Take down the name and telephone number of the officer, and make a call to double check.
You can even visit the branch and chat up the officer on your plan to buy a life cover-and learn more about LIC and its products from him. Also, you know where to make a complaint (branch manager is the first stop), if you have any in future.
Can I have the names of a few clients?
So far so good. Time to ask for references: names and phone numbers of a few clients. Make a few calls now to casually enquire how thorough and prompt this agent this. If it turns out that most complain about him, you know what to do.
Do you have experience of claim settlement?
A 'claim' occurs either on maturity of the policy or on the policy-holder's death. Almost all the insurance companies are fairly prompt in discharging maturity claims.
To ensure prompt disbursal of maturity claims, your agent must remember exactly when it is due, and make a few queries at the branch at the right time. However, successful death claims are the true measure of an agent's resourcefulness and ingenuity in arguing cases.
This is because Life Insurance Companies uses its discretion in passing these claims-and rejects many every year.
Why did you choose this policy for me?
Okay, you have settled for him/her and worked out the insurance sum amicably. Now, he/she will advise you on the policy that best suits your needs. Ask why he/she advises one, or rejects another. Helps if you know a bit about insurance policies and how they work, but if your agent is good, you wouldn't need to.
Life Insurance Companies does not print prospectuses with full details, so make an effort to understand the product you are buying. You could also ask for a written proposal or printed illustration and cross-check with another agent.
Could the premium be lower?
The rebate you are entitled to depend on your age, health, the policy term and the sum assured. Did he/she ask you about your medical condition of present & past?
If he/she hasn't, chances are there that premium amount may be inaccurate.
Alternatively, he might have randomly provided for illnesses and disabilities where none exist, in which case you would be paying more than required. Insure yourself against such possibilities by verifying with other agents, or in a branch office.
If the policy includes an accident cover, the premium would on an average go up by Re 1 per Rs 1,000 of the assured sum. On a big policy, this would be a substantial difference. If you are paying it, make sure the policy you have bought includes accident cover.
If your agent offers to collect the premium cheque (it is not his duty), make sure the cheque is made in favour of Life Insurance Company, and the policy number is written overleaf. Never pay cash. Check your bank statement to see how promptly he deposits the cheque. Always, as a rule, insist on receipts.
Don’t buy insurance from the first agent you meet
Insurance is not a vacuum cleaner you buy soon after a demonstration. Also, it is not just a one-time purchase. You constantly need to evaluate your risk and enhance your cover. The first agent is just a stepping stone; acquaint you with the basics before settling for just a Rs. 50,000/- (average policy in India) and feel secure.
Don’t follow the crowd
Bought a plan because that is the only one my agent suggested, my friend also has the same one:
Your friend having a plan doesn’t mean you should go for a similar one. Always ask your agent questions. Don’t let him dump policies that would give him the highest commission. You should get a cover that suits your risk profile.
I just bought a cover two years ago:
The issue is not the periodicity of purchase, but adequate cover that really matters. Got a promotion or increment lately, got married, or got a kid? Each of these occasion calls for reviews your risk profile and new additions. A good agent would be invaluable help here.
Term plans, not for me:
Ignoring term plans for endowment plans is a common mistake. True, they will not give you a fancy addition on maturity, but are cheaper and yield substantially on death.
To put it differently, you like endowment plans for saving part of it; for the same reason they are costly. What if you can’t afford them? You are definitely better off with a term plan rather than being underinsured.
Preferring a moneyback plan without noticing the higher premium: regular payments of survival benefit sure do look attractive, but they are costliest among insurance policies. You can’t justify the higher premium if you are not specific about utilizing the money.
Lastly I must say sincerely try avoid buying your insurance policy from any corporate agent. They always sell the policy with their own recipe.
There is a high risk of getting any after sell support which is very much important ingredient in life insurance industry world wide.
Fact is, you have to depend on your agent & he identifies the right policy for you, collects the premium cheques from you when they are due, and is your insurance newscaster. In short, he is more often than not the sole link between you and the Insurance company.
There are more than 10 lakh + of them to choose from and the idea is to identify the con artists and put them at an arm's length before they get you. Their disqualification by the tens of thousands every year tells a sordid story of the ways of Insurance agents.
An unscrupulous agent could sell you the wrong policy, or lie that he got you a loaded premium or encash the premium cheque in his favour, or be untraceable when needed.
LIC won't share the blame. At the most, it will terminate the services of the agent. And he will join the ranks of more than 1 lakh agents the Corporation debars every year. The main reasons are failure to meet business quotas and alleged malpractices.
In 1995-96, LIC terminated the services of 1.17 lakh agents. But the termination will not solve your problem. It will only aggravate it, for you have to find a new agent, get hold of old records, tally the numbers and recalculate premiums.
How do you avoid these problems? By sitting him down and asking a few simple questions. How he answers them should decide whether he gets your business.
Are you from the neighborhood?
An agent knocks at the door. After the initial courtesies, ask him whether he lives in the same area as you do. That will help you verify his antecedents, contacts and standing in the profession. You could compare notes with other people in the neighbourhood and be forewarned against erratic, irresponsible agents.
However, there is a problem with over familiar agents. Don't buy insurance because you have to oblige someone. It's your money-and your life.
Are you real?
No metaphysical twist there. Just ask him if he is a professional agent-a full-timer, in other words. There are many amateurs, part-timers and proxies masquerading as authorized agents in the business, hoping to make some money on the side.
Many have less than a year's experience. Any matriculate can be an agent, and Life Insurance Companies outdated yearly business quota system encourages unprofessional oddballs into the business. Buy policies only from professional agents.
What if the agent says he is a full-timer and you are still not convinced?
In that case, ask when he is available for his clients. If it is before or after normal office hours, you can be sure he is a part-timer. Non-availability during these hours is fine only if he gives a branch number where he can be contacted during the day. Be particular to check that he is not acting on somebody's behalf.
How many years have you been in the profession?
If the answer to the last question was in the affirmative, ask him how long he has been an agent. A matriculate could get in and out of the profession inside a year. Or work for five years to qualify for renewal commissions. Sources say only about 9 per cent of LIC agents have 10 years' experience. Remember, your policy term will be longer than that.
Do you have an office?
Never mind if he works out of a room in his flat or a coop in some dilapidated building. If he has an address he calls office, he means business. If it is "at this number between 10 am and 2 pm, and after 6 pm at my residence", he is not the guy you want.
Which branch do you work for? Who is your development officer?
You know that agents work for development officers attached to a particular LIC branch. Take down the name and telephone number of the officer, and make a call to double check.
You can even visit the branch and chat up the officer on your plan to buy a life cover-and learn more about LIC and its products from him. Also, you know where to make a complaint (branch manager is the first stop), if you have any in future.
Can I have the names of a few clients?
So far so good. Time to ask for references: names and phone numbers of a few clients. Make a few calls now to casually enquire how thorough and prompt this agent this. If it turns out that most complain about him, you know what to do.
Do you have experience of claim settlement?
A 'claim' occurs either on maturity of the policy or on the policy-holder's death. Almost all the insurance companies are fairly prompt in discharging maturity claims.
To ensure prompt disbursal of maturity claims, your agent must remember exactly when it is due, and make a few queries at the branch at the right time. However, successful death claims are the true measure of an agent's resourcefulness and ingenuity in arguing cases.
This is because Life Insurance Companies uses its discretion in passing these claims-and rejects many every year.
Why did you choose this policy for me?
Okay, you have settled for him/her and worked out the insurance sum amicably. Now, he/she will advise you on the policy that best suits your needs. Ask why he/she advises one, or rejects another. Helps if you know a bit about insurance policies and how they work, but if your agent is good, you wouldn't need to.
Life Insurance Companies does not print prospectuses with full details, so make an effort to understand the product you are buying. You could also ask for a written proposal or printed illustration and cross-check with another agent.
Could the premium be lower?
The rebate you are entitled to depend on your age, health, the policy term and the sum assured. Did he/she ask you about your medical condition of present & past?
If he/she hasn't, chances are there that premium amount may be inaccurate.
Alternatively, he might have randomly provided for illnesses and disabilities where none exist, in which case you would be paying more than required. Insure yourself against such possibilities by verifying with other agents, or in a branch office.
If the policy includes an accident cover, the premium would on an average go up by Re 1 per Rs 1,000 of the assured sum. On a big policy, this would be a substantial difference. If you are paying it, make sure the policy you have bought includes accident cover.
If your agent offers to collect the premium cheque (it is not his duty), make sure the cheque is made in favour of Life Insurance Company, and the policy number is written overleaf. Never pay cash. Check your bank statement to see how promptly he deposits the cheque. Always, as a rule, insist on receipts.
Don’t buy insurance from the first agent you meet
Insurance is not a vacuum cleaner you buy soon after a demonstration. Also, it is not just a one-time purchase. You constantly need to evaluate your risk and enhance your cover. The first agent is just a stepping stone; acquaint you with the basics before settling for just a Rs. 50,000/- (average policy in India) and feel secure.
Don’t follow the crowd
Bought a plan because that is the only one my agent suggested, my friend also has the same one:
Your friend having a plan doesn’t mean you should go for a similar one. Always ask your agent questions. Don’t let him dump policies that would give him the highest commission. You should get a cover that suits your risk profile.
I just bought a cover two years ago:
The issue is not the periodicity of purchase, but adequate cover that really matters. Got a promotion or increment lately, got married, or got a kid? Each of these occasion calls for reviews your risk profile and new additions. A good agent would be invaluable help here.
Term plans, not for me:
Ignoring term plans for endowment plans is a common mistake. True, they will not give you a fancy addition on maturity, but are cheaper and yield substantially on death.
To put it differently, you like endowment plans for saving part of it; for the same reason they are costly. What if you can’t afford them? You are definitely better off with a term plan rather than being underinsured.
Preferring a moneyback plan without noticing the higher premium: regular payments of survival benefit sure do look attractive, but they are costliest among insurance policies. You can’t justify the higher premium if you are not specific about utilizing the money.
Lastly I must say sincerely try avoid buying your insurance policy from any corporate agent. They always sell the policy with their own recipe.
There is a high risk of getting any after sell support which is very much important ingredient in life insurance industry world wide.
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