Less popular, low-cost insurance products are compensating the distributors’ fall in income from selling equity funds
Low-cost life insurance products are making a comeback, occupying the space once reserved for equity mutual funds. With the sales of equity mutual funds almost grinding to a halt thanks to abolition of entry load from August 2009, low-cost life insurance products that look like equity mutual funds have got a new lease of life.
“Life insurance companies always had products that were of lower cost. But distributors were not keen to sell them because they made much more money selling other insurance products. But with distributors now unwilling to sell equity mutual funds, insurance companies have sensed an opportunity to sell low-cost insurance products too,” says a chief executive officer (CEO) of an insurance company.
Accordingly, these products are being dusted down and pushed into the market. Plans like HDFC’s pension plan which is a single premium plan, are making a comeback. Other products in this category are LIC’s Market Plus unit-linked single premium policy and ICICI Prudential’s Life Time Super Policy. For instance, LIC’s pension plan deducts 3% (Rs990) as allocation charges for a premium of Rs30,000 which comes with options of life cover, accident benefit and critical illness benefit.
In fact, one of the largest and high-profile insurance companies is set to launch a product soon that will mean a commission of just 2% for its distributors.
The mutual fund distributors are also put off by the cumbersome and frequent changes in regulations. They want to ditch mutual funds completely. Many of them wanted insurance companies to protect their revenues they used to derive from selling mutual funds. To fill this gap in income, insurance companies have decided to highlight the low-cost funds in their portfolio.
Earlier, distributors were reluctant to sell these because they used to make much more money on selling regular insurance products. “If I have to sell an insurance product, I might as well sell one with the highest premium,” said a distributor.
“Why would I sell a product that yielded such low commission?” he asked.
Meanwhile, in the correction of the last two weeks, some money has come back into equity funds. “But this is not retail investors’ money. It is smart money that usually comes in when the market is down sharply. It also goes out quickly, once there is a rebound,” says a CEO of an asset management company.
CBI has arrested an official of SEBI on charges of demanding and accepting Rs25 lakh from a Kolkata-based businessman
The Central Bureau of Investigation (CBI) has arrested an official of the Securities and Exchange Board of India (SEBI) for demanding and taking a bribe of Rs25 lakh from a Kolkata-based businessman.
SEBI's assistant general manager Rajesh Pratap Singh had asked Gautam Kundu, chairman, Rose Valley Group of Companies, to furnish some documents and other particulars of the business being transacted by one of its companies as a corporate agent of LIC and GIC. RP Singh also allegedly asked for a bribe of Rs25 lakh from Mr Kundu for not pursuing the matter.
CBI's head for the anti-corruption unit Samir Ranjan Muzumdar led a team to make the arrest on Sunday evening at a restaurant in Alipore area of South Kolkata.
According to media reports, cash worth Rs28 lakh and other documents showing huge investments in movable and immovable property were recovered from the residence of RP Singh.
On Monday, Mr Singh was produced before the Special Judge at Alipore in Kolkata. He was remanded to judicial custody until 12th February.
“The arrested official (RP Singh) has been put on suspension with immediate effect,” an official from SEBI said. According to our sources, SEBI chairman CB Bhave has sent out an email expressing concerns over the bribe-taking incident.
Hansen stake divestment helped Suzlon retire debt, leading to an overall debt reduction of 15%, but operating profits were down 65% for the December quarter
Suzlon Energy, the wind turbine supplier which has been reporting losses since December 2008, has unexpectedly reported a small profit of Rs14 crore for the December 2009 quarter. The profit came from its stake sale in Hansen. Suzlon sold 35.22% stake, through its subsidiary AE Rotor Holding BV, in Hansen Transmissions International NV on 24 November 2009, which mopped up $370 million.
Suzlon sold its stake in Hansen due to the volatility and challenges impacting the near-term wind power market. It currently holds a 26% stake in Hansen.
Hansen’s revenue in the December 2009 quarter fell 14% to €136.6 million in 2009 from €155.4 million in the corresponding year-ago period. The company is on a cost-cutting drive.
The group’s net debt has reduced by Rs3,200 crore—from Rs13,762 crore in September 2009 to Rs10,488 crore in December 2009. Yet, the interest cost has gone up 24% to Rs289.51 crore from Rs233.85 crore in the year-ago quarter. This means that the debt reduction has happened at the fag end of the period. Debt will probably go down further. “Our rupee refinancing exercise has reached an advanced stage and we expect to achieve full closure by end-February 2010,” said Sumant Sinha , COO of Suzlon Energy Limited.
Despite reporting a small profit, big problems at Suzlon persist. It reported a 65% fall in operating profit to Rs276.64 crore for the December 2009 quarter. .
According to the company, the financial turmoil last year inflicted a foreign exchange loss of Rs123.97 crore. Suzlon claims to have an order book of 314.30MW as on 30 January 2010. The company registered a total income of Rs5,625.90 crore for the quarter ended December 31, 2009.
Suzlon raised Rs522.97crore on 24 July 2009 through global depository receipts (GDR) which are listed on the Luxemborg Stock Exchange. Choking under huge debts, Suzlon has desperately tried to raise funds, improve liquidity and undertake refinancing measures.