The Insurance Regulatory and Development Authority of India proposes not to go ahead with an earlier proposal to mandate that 25% of the corpus of unit-linked insurance plans (Ulips) be invested by insurers in government securities. The move will give fund managers more flexibility while investing the premia collected and help them give investors better returns.
“The industry had some reservations about the proposal and so we have decided not to go ahead with it,” an Irdai member told FE on condition of anonymity.
The official added that investment managers at life insurers would be free to invest according to the buyer’s preferences.
In June last year, the insurance regulator had, in an internal draft circular on investment guidelines, mandated that at least one-fourth of the funds collected via Ulips must to be invested in government securities.
Life Insurance Council, an apex body of life insurers along with industry representatives that include chief financial officers and chief investment officers, had met with the insurance regulator to review the proposal.
V Manickam, secretary general of Life Insurance Council, said Ulips were aimed at investors who were willing on to take higher risks. “Even otherwise, around 18% of the Ulip corpus is being invested in gilts,” he pointed out. According to the council, as of March 2016, of total assets under management of Rs 25 lakh crore, close to Rs 14 lakh crore is invested in government securities.
Ulips offer buyers both insurance and investment under a single plan and investors have the option to choose between equity and debt depending on their risk profiles. As of March 2015, the total corpus of Ulips was Rs 3.6 lakh crore, of which Rs 58,500 crore had been parked in government securities. Ulips are also eligible for tax benefits under Section 80C of the Income Tax Act.