In an interesting move SEBI has banned all the prominent Insurance Companies in India from issuing ULIP. The idea behind is very simple. The nature of these policies is such that a part of the money put in by the investor goes into the stock market – it is managed in a way which is quite similar to a mutual fund – therefore it comes under the purview of SEBI.
There has been an ongoing tussle between SEBI and IRDA over this issue as IRDA has been of the view that since these plans are primarily insurance plans therefore ULIP should be kept outside the radar of SEBI.
From the investor point of view this is a very positive development. It has been seen that selling of ULIP has been a very dirty game since inception. Such insurance policies are sold to innocent customers as investment plans and they are usually promised guaranteed returns by the sales agents – when an instrument that invests in the equity market can never guarantee any return.
SEBI in the past has also rationalized the Mutual Fund Industry in the benefit of investors by waiving off entry and exit loads for doing away with the perennial problem of churning of portfolio.
Presently the equity linked insurance options are burdened with commissions and charges – because of which a major amount does not even get invested.
The 14 companies barred from issuing ULIP with immediate effect until further issuance of order are:
- Aegon Religare
- Bajaj Allianz
- Bharti AXA
- Birla Sun Life
- HDFC Standard Life
- ICICI Prudential
- ING Vyasa
- Kotak Mahindra Old Mutual
- Max New York Life
- Metlife India
- Reliance Life
- SBI Life
- TATA AIG Life
Update on 11th April, 2010
In further battle between IRDA and SEBI, IRDA has asked Insurance companies to ignore SEBI ban and continue selling ULIPs. It termed SEBI order as against policy holder interest and financial stability.
Now question comes that who has the right to regulate insurance companies. Is it IRDA or SEBI? Only court or finance ministry can resolve it now.
Update on 12th April, 2010
SEBI has lifted the ban on selling of Unit Linked Insurance Polices (ULIPs) by 14 insurance companies. This move came in after SEBI guys met IRDA and finance ministry people. But Finance Minister Pranab Mukherjee has said that final decision will be by court.
Update on 13th April, 2010
Finance minister Prnab Mukherjee has said that he wants all financial products to move to ‘no-entry load’ regime.This clearly shows the stand of finance minister. This is in investor’s interest.
When SEBI removed all entry loads from Mutual fund investment, Mutual fund agents got affected. Their commission was cut and they stopped pitching to customers as they were not getting out of it. However, ULIP agents were making huge money (10-50%) on commissions from first 3-5 years of premium. Now SEBI wants a level playing field for both the agents, mutual fund and insurance ones. So there should not be any partiality for same kind of investment (both ULIP and MF invest in share markets). This was the main issue due to which SEBI banned ULIP selling.
SEBI has again issued a circular again saying that ULIPs launched prior to April 9 can be continued as usual but after 9th April, SEBI approval is required. IRDA has rejected this circular also