The insurance industry has requested Irdai to limit the requirement of investing 25% of Ulip funds in Central government securities to debt-oriented schemes and exempt equity plans.
In the first week of July, Insurance Regulatory and Development Authority of India had sent an exposure draft mandating at least 25% of Ulip funds to be invested in Central government securities. However, industry players believe such a move would lower participation of retail investors. Life Insurance Council — the apex body of life insurers — and representatives from the sector met Irdai to share their concerns.
“Ulips invest in line with customer preferences for a certain risk-return profile. Customers make investments on the basis of certain asset allocations and risk-return expectations. Bringing in this limit for existing products would be negatively disruptive and mean a deviation from customer expectations,” said a industry member.
There are several types of Ulips and different funds have different risk profile. While some invest in equity, other go for balanced funds whereas still others invest only in debt products. Ulips are also eligible for tax benefits under Section 80C of I-T Act.
According to estimates, the total corpus of Ulips stands at Rs 3.6 lakh crore out of which around Rs 60,000 crore is invested in Central government securities.
“Even now, we invest around 15-18% in Central government securities, but to subject even equity funds to that requirement will be injustice to investors. When an investor enters Ulips, he knows what risks he is taking and that money should be invested only in equity markets,” said the CEO of a top insurance company.
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