It is good news for investors. Close on the heels of Mutual Fund regulator SEBI scrapping the entry load on all MF schemes w.e.f. 1st August 2009, it is the turn of the Insurance regulator IRDA announcing a cap on charges levied on ULIPs. ULIPs are very popular amongst investors, accounting for over 80% of the new business premium collected by private insurance companies and around 65% new business premium for LIC.
According to IRDA, the difference between gross and net yields to a policyholder should not exceed 300 basis points (3%) for policies maturing within 10 years (fund management charges capped at 1.5%), and 225 basis points (2.25%) for policies maturing in more than 10 years (cap on fund management charges at 1.25%). Gross yield is the yield generated by the ULIP before all charges are deducted, and Net yield is the yield generated by the ULIP after all charges are deducted. To make the ULIPs more transparent the insurer at the time of maturity will have to issue a certificate showing details of year wise contributions, charges deducted and fund value. Experts are of the view that these measures would establish ULIPs as long term insurance plans. It makes the ULIP products more attractive than similar products available in the market.
The new regulations will become effective from 1st October 2009, for all products approved by the regulator after this date and all the existing products that do not meet the requirements are required to be withdrawn or modified by 31st December 2009.
1 comment:
It's a nice piece of information for investors. It's heartening to note that the regulators are working towards investor protection, which augers well for the improvement of investor sentiment.
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