Column: Ulips favour agents,not investors

The Sebi-Irda tangle over Ulips will have an impact on how retail investors will invest their money in the future. Ever since Ulips were introduced in the market,they have been a successful product; agents drove sales aggressively because of the hefty commission they received. Sebi had earlier banned entry load on mutual fund products that diverted agents attention away from these products and into Ulips.

By selling Ulips,an agent gets a commission of around 40% of the premium in the first year and around 15-20% in the second. After the third year,the agents are left with little incentive to sell the product and they start selling new products. Sebi banned entry load on mutual fund products last year and agents were selling this mutual fund product camouflaged as insurance products. Data suggests that the total amount of first-year single premium collected by Ulips in the last one year was Rs 15,838 crore,accounting for about 41 lakh policies. In contrast,for traditional life insurance plans,the premium collection was Rs 2,063 crore from about 6 lakh policies. This clearly shows that Ulips were clocking much higher sales than traditional insurance covers.

Last month,in March,when most people plan their tax savings,many insurance companies launched an innovative Ulip product by promising to repay the investor on the basis of highest NAV that the fund achieved. Though a lot of investors got attracted to the scheme,what was actually offered was an investment system with a very long lock-in period where protection is achieved by putting the gains in fixed income assets. Moreover,these schemes do not provide a wide range of product categories,such as equity-oriented growth funds and balance funds.

The so-called guarantee was actually a marketing gimmickthe market regulator does not allow mutual funds to guarantee returns. But since the insurance regulator Irda can approve such schemes,insurance companies lined up products at a time when most investors draw up their annual tax saving plans. Such misselling of financial products must be regulated by the market regulator,Sebi.

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