Arbitrage Funds

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Wednesday’s Market Preview: Range-bound opening likely

The local market is likely to see a range-bound opening today as the US markets closed weak overnight on fears that Portugal’s debt might come in for a downgrade. Markets in Asia were mostly soft in early trade this morning on continued anxiety over the Eurozone crisis and ahead of release of Chinese manufacturing output data, a key pointer of economic growth. The SGX Nifty was down 14 points at 5,876 against 5,890 on Tuesday.

Most auto companies will announce their sales numbers for November, guiding the sector today. Besides, realty stocks that have seen appreciable gains in the last two days are likely to see some offloading.

The market opened in the red on Tuesday, tracking its regional peers that were trading lower on concerns about the pace of the global recovery process. It traded in a narrow range till noon, with the strong gross domestic product (GDP) numbers for the second quarter giving the indices the much-needed boost, pushing them up into positive territory. Buying in the broader market in the post-noon session propelled the market further northwards to the day's high. The indices pared some gains but closed around half a percent higher. The Sensex closed 116.15 points (0.60%) up at 19,521.25 and the Nifty settled at 5,862.70, 32.70 points (0.56%) higher.

Markets in the US closed lower on Tuesday but off the day’s lows on nagging fears about the sovereign-debt crisis in Europe despite positive economic news. The S&P/Case-Shiller index of home values in 20 cities rose 0.6% in September from the same month in 2009, the smallest gain since January. The gauge fell 0.8% from the previous month after adjusting for seasonal variations, the biggest drop since April 2009. Besides, The Conference Board’s sentiment index increased to 54.1, topping analysts’ forecast. The Institute for Supply Management-Chicago Inc said its business gauge advanced to the highest since April.

The Dow declined 46.47 points (0.42%) to 11,006.02. The S&P 500 shed 7.21 points (0.61%) to 1,180.55. The Nasdaq fell 26.99 points (1.07%) to 2,498.23.

Markets in Asia were weak in early trade on lingering concerns about the global economy. The release of the Chinese manufacturing output data today also weighed on the investors. The development is expected to hold the key for a further review of the country’s monetary policy.

The Shanghai Composite declined 0.53%, the Hang Seng was down 0.49%, the KLSE Composite was fell 0.44%, the Nikkei 225 shed 0.05% and the Straits Times was down 0.46%. On the other hand, the Jakarta Composite surged 0.99%, the Seoul Composite added 0.23% and the Taiwan Weighted jumped 1.06%. The SGX Nifty was down 14 points at 5,876 against 5,890 on Tuesday.

The government will take a decision on permitting regular exports of sugar towards the end of December, following an assessment of total production of the sweetener in the 2010-11 crop year.

“Most sugar mills have not even commenced crushing operations and hence, the production review could not take place this month,” food and agriculture minister Sharad Pawar said.

The ministry has pegged sugar production in the 2010-11 sugar year (October-September) at 24.5 million tonnes, as against the annual domestic demand of 22.5-23 million tonnes. However, the industry has projected that production of the sweetener will touch 25.5 million tonnes this year.

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Mortality charge hiked in new ULIPs despite increase in life expectancy

Longevity should reduce mortality charges. Instead, many insurance companies have resorted to increasing it. It could be just another way to deceive customers and fill their coffers through the additional charges

The average life expectancy in India for males has increased from less than 60 years in the 1990s to over 67 years today, mainly due to medical advance. One would have expected that this would result in lower mortality charges in life insurance calculations. However, the reverse seems to be the reality.

Mortality charges of new ULIPs have gone up. Indian insurance companies use LIC's mortality table (which was prepared 15 years ago) as a base and combine that with their own claims experience and expenses to price products. This is a subjective matter and hence the mortality charges of insurers vary, but there is no downward trend.

The cover story in a recent edition of Moneylife magazine exposed how insurance companies have not really reduced premium allocation and the policy administration charge. The new ULIPs carry more charges than old ULIPs over a period of five years or more.

Interestingly, many insurers have also increased the mortality charges, probably because it is outside the cost cap of the Insurance Regulatory and Development Authority (IRDA). Insurers are becoming creative in finding ways to levy charges on customers. In some cases, the payment for accidental death benefit is more in new ULIPs and hence the mortality charge has been increased substantially.

The Bajaj Allianz Max Advantage brochure specifies that in case of death the company will pay the sum assured and the fund value to the nominee. Apart from this, an additional sum assured shall be payable if the cause of death is an accident, subject to the policy being in force. These additional benefits that were not provided by Bajaj Allianz iGain II (Old) has jacked up the mortality charge substantially. (The tables indicate the mortality charge per Rs1,000 sum assured for a male life in the old and new ULIPs.)

The Reliance Classic plan brochure specifies that an additional amount equivalent to the base sum assured is payable in the case of accidental deaths. The additional benefit has jacked up the mortality charge substantially.

Birla Sun Life Dream Endowment plan (new) does not give an additional benefit, but it has increased the mortality charge for the younger age groups and reduced it for older age groups following on a study of mortality experience.

Moneylife tried to contact Bajaj Allianz, Birla Sun Life and Reliance Life on the justification for the increased charges, but did not get any response from these companies.

Aviva and Metlife have also hiked mortality charges by about 10% and 20% respectively. 

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COMMENTS

Zack

6 years ago

If you look at the charges objectively i dont really see any prima facie, birla plan has additional benefits that earlier plan hence increase in charges. Sounds ok as why would any company give addl benefit for free. @shankar & @satish - ULIPS are very transparent products in comparision to non ulips if you check closely, point it people just agree with their agent and go for it without any due deligience. @Satish - what is the rationale for 10 years? i dont think anyone is able to predict returns accurately anyways.

REPLY

Satish

In Reply to Zack 6 years ago

Dear Sir, I do agree that non ulip plan has very much to hide. People don't see IRR return or net yield. They are just make savings. Do not investing. You are also true that there is no rationale for lock in period of 10 years, but we all know that in new ulips some charges reduced & added in other heads. So, in future mis-selling will continue. My intention behind lock in of 10 years, is mis-selling will reduce some extent. We can't stop life insurance co. to sell ulip or govt. can't. In ulip, we can't compare NAV return with benchmark index return, because there is charges are deducted in terms of unit. Inspite of Ulip get more score against traditional, but people are investing in ulip much more heavily due to ignorance. They don't know, this money will invested in market. Specially in LIC, mostly agents sell it just like fixed return schemes. You can predict return much more nearly in MF comparing to ULIP. That's it.

Gerard Colaco

6 years ago

The American commedian Evan Esar said: "Insurance is the business of protecting you against all possible risks, except the risk of the insurance agent." What he forgot to include was the risk of the insurance company too!

Madhusudan Thakkar

6 years ago

Moneylife Team deserves compliments for exposing open secret of life insurance companies.On the one hand term plans are becoming less expensive day by day mortality charges are hiked for no reason.Mortality charges play an very important role in overall returns.All companies have hiked their mortality charges in new ULIPs,In some companies there are different mortality charges for different ULIP plans.

Satish

6 years ago

IRDA not protecting policy holder but insurance companies. All this plan approval done blindly. Why should they are not extending lock in period min. of 10 years. Charges under various head are for looting, nothing else.

shankar

6 years ago

Looto Indian ko looto....Sara Hindustan me scam ho raha hai.Niche se lekar upar tak sab chor baitha hua hai....Aam Addmi to bali ka Bakra hai....Gandhiji ne kya yehi Hindustan ka sapna dekha tha......

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