The draft guidelines issued by Irdai mandate at least 25% of Ulip funds to be invested in Central government securities. Industry players believe this move could lead to lower participation from retail investors
Members of Life Insurance Council, an apex body of life insurers, and other representatives from the sector met regulator Irdai recently to discuss the draft Ulip norms.
The draft guidelines issued by the Insurance Regulatory and Development Authority of India (Irdai) mandate at least 25% of unit-linked insurance plan (Ulip) funds to be invested in Central government securities. Life insurers will now send their final review of the draft norms by July 24 to the regulator.
V Manickam, secretary general, Life Insurance Council, said: “We had a meeting with member of finance and investments, Irdai, on July 10 and explained our concerns on the issue. We suggested that they should not implement these draft guidelines as Ulips are for risk-taking investors. Even now, the insurance sector invests around 16% of the total Ulip corpus in Central government securities.”
According to the council, the total corpus of Ulips stands at R3.6 lakh crore out of which around R60,000 crore is into Central government securities. The insurers were represented at the meeting by chief financial officers and chief investment officers of six companies.
Earlier in the month, Irdai released draft guidelines that mandated at least 25% of Ulip funds to be invested in Central government securities. However, industry players believe the move could lead to lower participation from retail investors.
There are several types of Ulips and different funds have different risk profiles. While some invest in equity, others go for a balanced approach, and still others invest only in debt products. Ulips are also eligible for tax benefits under Section 80C of Income-Tax Act.
“We have requested that if Irdai still wants to hike investments in Central government securities, they should do it for traditional plans as they are less risky,” said Manickam.
According to the rules, 50% of the premium collected from traditional policies has to be invested in Central as well as state government securities.
Industry participants are hopeful that the draft guidelines would be modified.
“If this proposal is implemented, it will become very difficult to sell these policies. For many players, a large share of profit comes from Ulips. We hope that, in the next few weeks, there will be some clarity on the issue,” said a top official from a leading life insurance company.