Low-cost insurance products quietly replace equity mutual funds

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.

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    10 years ago

    If life insurance company sell mutual fund product then what is the justification of existence of MF industry. if their is no harm to deduct commision from investor's investment in life insurance product then why so hue and cry about entry load. Please dont confuse us and other.

    Srikanth Matrubai

    10 years ago

    Do not categorise all IFAs as being after Commission only. There are genuine Advisors among them too.

    CBI arrests SEBI official for taking Rs25-lakh bribe

    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.

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    9 years ago

    Why CBI arrested Singh of SEBI?As per the functioning of SEBI I found the SEBI officials are exempted from CVC & CBI raid as because they are working for the interest of fraud companies,brokers and Depository Participant and Depository.Though SEBI Act was enacted in the parliament for the best interest of the General Investment Public but in reality they are safe guarding the interst of the fraud/Cheator companies,Brokers,Depository and DPs.Dr.Man Mohan Singh rightly told our Vigilance depts,CBI and CVC failed to catch Big Fish those officials taking bribe worth crores

    debashish mohanty

    10 years ago

    Instead of regulating capital market and mutual fund C B Bhave should bring strict regulation in his office and investro should know what happened in the case of NSDL against him.

    Avinash Murkute

    10 years ago

    It was heartening to read the news of arrest of SEBI AGM while accepting huge bribe of 25 Lakhs. This very episode exposed transparency claims of state and defaced the slogan of Zero Tolerance to Corruption.
    Public servants striving for such big amount of bribe is really shocking and this could be eye opener for many PSU CMD's too.

    CBI as well as complainant needs to be congratulated for delighting citizens of India for such wonderful news.
    The corrupt should understand that true citizen of India celebrate arrest each corrupt national.

    Time to brand corrupt nationals as terrorist. Thanks to Money Life for better coverage.

    Avinash Murkute

    rangan v

    10 years ago

    this claerly shows that sebi which is formed for invetorsprotection actaully colluding with shadypromoters since sebiofficials can easily negotiate unlike the public .sebi is aden of corruption and no public can approach with ease and anypublic going to sebi are traeted shabbily as if they are demi gods.it is high time that sebi make all face value of shares to re 1 so that it can out to rest all cconfusion by investingpublic

    Vijay Trimbak Gokhale

    10 years ago

    I bow my head down in utter shame. Pray god that there are not many skeletons waiting to tumble from the cupboard and this is not just a tip of the iceberg.

    Profit from stake sale can't hide Suzlon's deeper problems

    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.

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