No one with a financial sense will put a single paisa in Ulips

ET 19/4/2010

The controversy about Sebi trying to regulate Ulips has generally been presented to the public as a case of two regulators struggling to defend

their turf. However, it is much more than that. At one level, this conflict represents a comprehensive failure of the basic architecture of India’s financial regulations. This architecture is based upon Irda regulating insurance companies and Sebi regulating all investment vehicles, which expose investors to market risk. The current conflict arises from the fact that market-linked securities form a bulk of the business of insurance companies.

The conflict is sharpened by the very different rules that Irda and Sebi upon what are essentially identical products. Sebi-regulated mutual funds are far lower in cost, and higher in transparency and customer-friendliness than Irda -regulated Ulips. Sebi’s approach has generally been focused on ensuring a better deal for customers, whereas the Irda is more worried about the health and well-being of the insurance companies and agents. Somewhere around, there’s also a constituency — well-represented in the business media — who see Ulips basically as a way of ensuring a continuous flow of funds into the stock markets.

However, for the alert and knowledgeable investor, who’d like to be careful with his money, this whole fracas is irrelevant. The question of whether Ulips — as currently sold by insurance companies — are an investment-worthy vehicle was settled long ago. No one who has any financial sense would put a single paisa in a Ulip.

Unfortunately, a bulk of India’s investing public is made up of financially illiterate people who obligingly buy whatever is being sold and advertised most intensively. These people are the market for Ulips, and they have been a rich source of funds for insurance companies and their agents. If the regulatory system is not overhauled, then these people will continue to give away their hard-earned money to the insurance industry. There’s nothing anyone will be able to do about it.

Of course, if you belong to the minority of investors who understand and appreciate the real picture (and as a reader of this newspaper you are likely to be), then you can just ignore this whole sorry mess. You are wise enough to have ignored Ulips till now, and that’s what you should continue doing in the future.

However, the current controversy could well be is a turning point in the regulation of India’s consumer finance products. Either the government will decide that the savers’ financial being is the most important thing, or, the rich and powerful insurance industry will settle down with its hands deep in the pockets of ordinary Indians who are completely dependent on the government to protect them.

As far as I can see, the hardest part seems to be admitting the mistakes of the past, of recognising how deeply misguided insurance regulation has been in India. I’m not really sure if the powers that we have will give us the courage to do that.

By Dhirendra Kumar, CEO, value research.

3 thoughts on “No one with a financial sense will put a single paisa in Ulips

  1. Narendra

    Dear Sir,

    I have invested in ULIPs for past 6 years and I feel cheated today.
    If I had invested the same in an FD, I would have earned more than what I have got today.

    And when I told this to my relationship manager from the same company, he advised me to withdraw from that ULIP and invest in another one.
    When I asked him “why I should do so”, he said this new ULIP is “very cheap – it has only 1.32% charges”!
    I was very happy and had decided to shift my money.
    So, I asked him to send all the details and in that also it was clearly written that the charges are 1.32%!
    It was hard to believe, since all ULIP’s have high charges.
    When I read it multiple times, somewhere in the small letters it was mentioned that this is a “monthly charge”!!
    I was horrified and I immediately wrote back to my relationship manager.
    He never replied and he has not contacted me back again!

    What does this show? The company I am talking about is a very reputed company and is one of the largest in our country.
    What is the need for them to cheat investors?
    Why they can’t tell that the charge which looks so small when compared to others is not yearly!?

    I feel that, the whole business of ULIPs is the cheat investors and every investor should be very careful.
    If anybody is defending ULIP’s then he should be getting some benefit because of this business.
    Otherwise I don’t see any reason to defend ULIPs.




    Dear All,
    it is unfortunate to read such an article by a CEO of Value research.
    I do understand Mr Dherendrakumar does not like the IFAs and his mind is set they are only here to cheat.

    Mr dherendra Kumar one thing in life please understand you will see good and bad people in all proffessions it does not mean all proffessions are bad.

    everybody can cook their food themselves it is higinic and cheap so do you mean to say all restorants, hotels, messes, canteens should be closed.

    No one is stoping anybody to make their own research and do investments as they like but IFAs only help those who want their services and definitly they should be compansated for their work and their work is not just picking up forms and depositing with the AMCs. People like Mr D Kumar know very vell if they write anything in media there is no one to size thim as calling IFAs as cheats and saying that you can do direct investments with out anty cost will bring them fame and wealth but Realise one thing every body has to prove intheir job/work to servive in their job and earn. Personal finance is the one which will make them to save someting and earn a better return to secure their future or meet their future requirements. If they have to do the study and do their investments, how do they do their regular work which gives them their daily bread?

    Of course they should select good advisors who can help them and the advisor is not doing a charity work he/she has to feed himsel/herself and look after their families as you do.

    About IRDA/ SEBI battle ULIP products are definitly subject of iRDA but individual FUNDS in which ULIPS are investing may be the juridiction of SEBI and SEBI can easily discuss these maters with IRDA and resolve the matter if they realise they are there to safegaurd the investors money but it looks like that they are there to show everybody what powers they got and how everybody has to come to them kneeling.

    K B BHAT


  3. raghavaiah kurapati

    How it is sure that sebi is properly controlling all mfs, listings, tradings, and other related activity, do you feel the investors are safe through sebi and all that is required by sebi is being done.



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