Flashback...चार साल पेहले...
The row between the Insurance Regulatory and Development Authority (IRDA) and the Securities and Exchange Board of India (Sebi) is turning into an arm-wrestling match between two statutory bodies with huge clout. The chain of Sebi's argument goes like this: Life insurers offer unit-linked insurance plans (Ulips), Ulips invest in equity, hence, Sebi wants Ulip schemes registered like mutual funds. IRDA has no intention of ceding control. Since both regulatory bodies have clout, they will eventually work out some compromise.
और अब And Now....
The so-called turf-war on ULIPs that SEBI and IRDA have been fighting has now taken a life of its own. In reality, just about the least important thing is who regulates ULIPs, while the most important thing-or rather, the only important thing-is that investors understand what they are getting into and make the choices that are best for them. I find that there's a great deal of misinformation floating around about ULIPs and why exactly are so called investment - insurance advisors in favour of them.
Perception: ULIP expenses have been lowered by IRDA. Expenses are now down to just 3 per cent for ULIPs of up to 10 years and 2.25 per cent for longer ones. Mutual funds, by comparison, have higher fund management charges.
Reality: The way IRDA has framed the rules, 2.25 or 3 per cent is effectively the average over the entire lifetime of a ULIP. The charges are heavily front-loaded. During the first year, these charges are as high as 40 to 70 per cent. If the customer cannot continue with a policy for any reason, then his real expenses are far higher. And as it happens, a huge proportion of policies lapse during the earlier years. The front-loading has no logic, except to enrich insurers and agents. And fund management charges being lower than mutual funds is a not a full comparison. In mutual funds, total expenses are capped at 2.25 per cent for equity funds and less for other funds. These are not comparable to the fund management charges of ULIPs because ULIP customers also pay premium allocation charges, policy administration charges, mortality charges, and for guaranteed ULIPs, guarantee charges. Comparing fund management charges alone is a joke.
Perception: ULIPs have led to a massive rise in insurance penetration in India.
Reality: Insurance means insurance, in the sense when the insured person dies, his family gets money to pay for food, rent and education. In a country with minuscule social security as ours, the growth of insurance has to mean the growth in the reach and quantum of risk cover for lives. To call a non-insurance, market risk-bearing product such as ULIP insurance and then present it as evidence of the growth of insurance is simply dishonest.
Ulips have been around for several years. The structures are known. Almost every financial newspaper and business magazine of repute has analysed Ulips and shown in detail why investors should avoid them.In themselves, Ulips are not fraudulent; it's just that investors can get far better deals. So this is a classic case of “buyer beware”. If investors insist on buying Ulips, there isn't much more that can be done since there are already ample warning signs in the public space. It is also easy to understand why agents push Ulips - due to huge front-loaded commissions.
Having said that, the mistake investors make, is to confuse insurance with investment. Insurance is a bet you want to lose. Investment is a bet you want to win.
Two entirely separate intentions. Use two different instruments.
Ninad Kamat
CERTIFIED FINANCIAL PLANNERCM
Image Source: GKtoday.in
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