The Securities and Exchange Board of India (Sebi) and the Insurance Regulatory and Development Authority (IRDA) have been sparring over the regulation of unit-linked investment plans (Ulips). Over 50 ulips have been launched by various companies in the past 20 days itself. This in itself proves that ULIPs are the hottest investment product.
Sebi wants an explanation as to why the insurance companies (LIC, Bharti AXA, Bajaj Allianz etc.) failed to get their approval before selling Ulips as a portion of fund is invested in stock markets. Under Section 12(1B) of the Sebi Act, forbids all from offering investment schemes, including mutual funds in securities market, unless approved by Sebi.
In response to this IRDA member, said: “Ulips are internationally sold by Insurance Companies and not by any other segment of financial services. They are a composite Insurance product, but the investment is shown separately because the investment risk is borne by the policyholder. This product is structured as per international practice and is well within Section 2(11) of the Insurance Act.”
While the particular section in the act recognizes life insurers right to sell such products, Sebi probably feels that the schemes that generate a return on investment are similar to collective investment schemes which come under its jurisdiction. This is after Irda wrote to Sebi explaining that apart from providing a maturity benefit, Ulips also incorporate mortality and morbidity benefits and so, come under the purview of the insurance regulator.
For those who are new to this product. Ulips are Insurance Plans similar to mutual funds, it has been around ten years since it launch. ULIP is a broad term used to describe insurance plans where the investor chooses the asset. Ulip money is allocated to either an equity or income or balanced fund and any gain in the value of these assets is reflected in the appreciation of the net asset value of the units. Charges towards Insurance and asset management are recovered from policyholders like in the case of mutual funds.
Over 80% of the new premiums collected by the insurance companies happen to be from ulips. In fact ulips have made insurance companies emerge as the players dominating the stock market. Ulip fund managers were turning into significant players in the equity markets with equity assets under management of the Life Insurance industry running into several billion. Globally there are not many cases of such regulatory dispute as life insurers in India are barred from using the services of mutual fund managers even though almost every life insurance promoter has a mutual fund within the group.
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Tags: Bajaj Allianz Life Insurance, Bharti AXA Insurance, Insurance plans, LIC, Life Insurance, ULIPS