One of the former SEBI (Securities and Exchange Board of India) chairmen Mr. C.B. Bhave, at a mutual fund summit three years ago had criticised the mutual fund industry for introducing products without caring about their performance. He further alleged that the mutual fund industry served only distributors and not investors by launching products with sub-optimal returns, SEBI tightened the process of regulatory clearance for mutual fund schemes.
“Do customers really need so many products?" Mr. Bhave added at the summit.
The Insurance Regulatory and Development Authority has the same complaint. Mr. Hari Narayan, Chairman, IRDA said, “Today products available in the market are designed in such a way that they build a certain corpus in a certain period. But in reality they have not been able to do that. Why can't companies pick up the designs of only those products that are the best in the stable?"
“While clearing products, we are going to carefully examine if the product design matches expectations", he added.
It is to be noticed that the money put into ULIPs are mostly invested in equity to maximize returns. Like mutual funds, their performance is linked to the market.
India's life insurance industry is estimated at Rs.16 trillion.
In view of the changing market scenario, the regulator is all set to relax investment norms and amend certain financial norms. IRDA will release 3 exposure drafts in couple of days on the industry's financial aspects. The regulator is also planning to move the industry to a risk-based solvency regime.
Mr. Narayan said, ““The exposure draft will look at the introduction of certain hedging provisions for insurance companies through instruments such as swaps, derivatives and so on apart from investment norms for insurers."