LIC agents promise 200% return on '0-investment' plan
22 Feb, 2008, 1340 hrs IST,Debjoy Sengupta, TNN
Source: http://economictimes.indiatimes.com/LIC_agents_promise_200_return_on_0-investment_plan/articleshow/2805341.cms?from_et_wnd_newsltr=1
KOLKATA: Life Insurance Corporation of India (LIC) may have gone to the extent of foregoing premium income from unit linked policies to make sure customers are not lured into buying them on false promises by agents.
But despite this, a section of agents have gone to the extent of asking policyholders to take loans on their existing policy and invest in Market Plus—a unit-linked policy. What’s more, they are claiming it to be a zero-investment plan with a return of about Rs 75,000.
Agents are targeting those policyholders who are eligible to take at least a loan of Rs 50,000 on existing policies, and are sending letters in envelopes with printed address and existing policy number on which the loan is eligible.
These letters look typically like the ones sent by LIC, only that they do not have the LIC logo or LIC office address on the envelope. The letter, however, is just a printed sheet of paper with LIC’s logo, and ‘Bhartiya Jeevan Bima Nigam’ written on it. In bold is ‘0 investment plan’. A copy of the letter is available with ET. It, however, is not signed and has no name of any agent on it.
Here’s how, the zero-investment plan is supposed to work. Take a loan of Rs 50,000 on an existing policy for five years. The interest for which, according to this letter, works out to Rs 27,648 at the rate of 9% per annum. Hence, the total refund after five years needs to be Rs 77,648.
“How can people, other than agents, get hold of policy numbers on which loans of Rs 50,000 are eligible,” argued an insurance analyst. Senior LIC officials said: “Although we are discouraging such practices such cases exist.”
Now comes the twist. According to the above calculation, if one invests Rs 50,000 in Market Plus, the letter claims that total receipts after five years will be Rs 1, 52,587. Hence, according to the letter, the approximate profit would be Rs 74,939 after five years. This is arrived at by subtracting Rs 77,648 (the total amount that needs to be refunded for the loan taken) from Rs 1, 52,587 (the total returns after five years from Market Plus). However, the letter also says: “Returns may vary according to market fluctuations.”
The math is perfect, but it assumes that Rs 50,000 invested in Market Plus will treble in five years, that’s about a 200% return. This is illegal!
Insurance Regulatory & Development Authority (IRDA) has made it clear time and again that agents and insurers cannot portray more than 10% return on any type of policy in the long run. In contrast agents are assuming a 200% return here, which is against the IRDA norm.
Interestingly, IRDA chairman C S Rao disclosed to ET that he had also come across a similar handout inserted in newspapers. Although this one had some other sort of advertisement promising very high returns on unit linked policies.
Nevertheless, LIC had gone to the extent of spending money on newspaper insertions that stated returns on unit-linked polices are not guaranteed.
Further, in an effort to create awareness that returns from unit-linked policies are not guaranteed, it took a conscious decision to shift its focus from individual single premium policies (unit-linked policies) to individual non-single premium policies i.e. traditional products.
Sunday, February 24, 2008
Monday, February 11, 2008
ADVANTAGE OF INVESTING IN ULIPS COMPARED TO ELSS
What are the striking features of ULIPs as compared to ELSS Mutual fund schemes?
The horizon of investment is not the same. ELSS is medium term whereas ULIP is more long term.
The tax advantages are higher in ULIPs (entry + maturity) as compared to ELSS.
Lock-in period for ELSS is three years. During this period you cannot reduce your risk.
Lock-in period for ULIPs is three years but, through switching facility, you have the flexibility to change your investment pattern.
Maturity benefit after three years in ELSS is taxable as Capital gains at 10 per cent or 20 per cent.
In ULIPs, maturity benefits are tax-free as per the current tax laws and partial withdrawal also is tax-free.
ULIPs offer protection-cum-market-related returns. Under the same product, you have a wide range of investment options.
With Ref: http://www.thehindubusinessline.com/iw/2007/11/25/stories/2007112550981300.htm
The horizon of investment is not the same. ELSS is medium term whereas ULIP is more long term.
The tax advantages are higher in ULIPs (entry + maturity) as compared to ELSS.
Lock-in period for ELSS is three years. During this period you cannot reduce your risk.
Lock-in period for ULIPs is three years but, through switching facility, you have the flexibility to change your investment pattern.
Maturity benefit after three years in ELSS is taxable as Capital gains at 10 per cent or 20 per cent.
In ULIPs, maturity benefits are tax-free as per the current tax laws and partial withdrawal also is tax-free.
ULIPs offer protection-cum-market-related returns. Under the same product, you have a wide range of investment options.
With Ref: http://www.thehindubusinessline.com/iw/2007/11/25/stories/2007112550981300.htm
KNOW IPO BETTER
What exactly is an IPO?
When a company wants to raise money, one of the ways it can do so is by selling its equity shares to the public. If it happens to be the first public offer of the company, it is known as the initial public offer (IPO). In an IPO, the promoters share in the company's equity comes down, as the number of shares issued by the company (paid-up capital) increases. After the IPO, the shares get listed on the stock exchange and shareholders can trade their shareholdings on the bourses.
How to make an IPO?
To make an IPO, a company has to file a prospectus with the Securities and Exchange Board of India (SEBI) stating the purpose of raising the money and disclosing other details of the company and its directors. Once it is approved by SEBI, the company files the prospectus with the registrar of the company to initiate the process of IPO. According to SEBI norms, a minimum of 30% of any IPO is reserved for retail investors — those who are applying for shares worth less than Rs 1,00,000. The shares are allotted on a pro-rata basis among applicants. That means, if the retail investor portion of the IPO is oversubscribed by two times, every applicant will get half of the number of shares he applied for.For large investors, whose application size is more than Rs 1,00,000 each, there is a minimum reservation of 10%. In this category too, shares are allotted on a pro-rata basis.
How is the offer price fixed?
The offer price for shares in a public offer can be fixed before the issue. It can also be discovered through gauging the demand in the market for shares at various price points. The second method is called the book-building route. In this, the issue manager fixes a price-band rather than a single price for the IPO and asks investors to bid for shares in that price range. The price band is fixed on the basis of the fundamentals of the company, the performance of share prices of other companies in the same sector on bourses and market survey conducted by issue managers.
Know more about Initial Public Offer?
An investor can bid for shares at various price levels. Normally, the demand for shares at the minimum price level is the maximum. But when the market is booming, the issue is often oversubscribed at the higher end of the band itself. In such a case, the offer price is ultimately fixed at the upper end of the band. What is a follow on-public offer?When a listed company makes a public offer to raise funds, it is called a follow-on public offer. In these cases too, the offer price can be fixed or be discovered through book-building. Normally, the offer price is at a 10-20% discount to the prevailing share price in the market.
Other ways to raise funds from market?
A company can raise funds through a rights issue. In this, the company gives shares only to existing share holders at a certain ratio to the number of shares already owned. For example, in the case of SBI, one rights share is to be given for every five SBI share owned. Normally, a rights issue has the twin purposes of rewarding the shareholders of the company and raising funds. Shares are, therefore, typically offered at a 30-50 % discount to the prevailing market price. Therefore, just before a rights issue, the share price of the company goes up.
In a rights issue, how is the entitlement of shares fixed?
In a rights issue, a cut-off date is fixed, known as the record date. Rights shares are given to those share holders who own the company’s shares on the record date. For example, in case of SBI, the record date is fixed at February 4. That means, rights shares will be given to those investors who own SBI shares on February 4. If one buys an SBI share after February 4, he will not be entitled for the rights share despite the fact that the rights share will be issued after that date. Similarly, if one sells share after February 4, he will still get the rights shares of SBI.
What is offer for sale of equity shares?
In an offer for sale, equity shares of a company are offered by large shareholders, who can be promoters also, to the public. When the Government of India divests its holdings in a public sector company, for instance, it makes an offer for sale. One famous issue of this kind was ONGC's issue of around Rs 10,000 crore, in which GoI had divested its holding in the company. In an offer for sale, the money raised goes to the seller of the stake and the company is not benefited. But, this is also treated as a public issue and follows all the rules of public offerings of shares.
When a company wants to raise money, one of the ways it can do so is by selling its equity shares to the public. If it happens to be the first public offer of the company, it is known as the initial public offer (IPO). In an IPO, the promoters share in the company's equity comes down, as the number of shares issued by the company (paid-up capital) increases. After the IPO, the shares get listed on the stock exchange and shareholders can trade their shareholdings on the bourses.
How to make an IPO?
To make an IPO, a company has to file a prospectus with the Securities and Exchange Board of India (SEBI) stating the purpose of raising the money and disclosing other details of the company and its directors. Once it is approved by SEBI, the company files the prospectus with the registrar of the company to initiate the process of IPO. According to SEBI norms, a minimum of 30% of any IPO is reserved for retail investors — those who are applying for shares worth less than Rs 1,00,000. The shares are allotted on a pro-rata basis among applicants. That means, if the retail investor portion of the IPO is oversubscribed by two times, every applicant will get half of the number of shares he applied for.For large investors, whose application size is more than Rs 1,00,000 each, there is a minimum reservation of 10%. In this category too, shares are allotted on a pro-rata basis.
How is the offer price fixed?
The offer price for shares in a public offer can be fixed before the issue. It can also be discovered through gauging the demand in the market for shares at various price points. The second method is called the book-building route. In this, the issue manager fixes a price-band rather than a single price for the IPO and asks investors to bid for shares in that price range. The price band is fixed on the basis of the fundamentals of the company, the performance of share prices of other companies in the same sector on bourses and market survey conducted by issue managers.
Know more about Initial Public Offer?
An investor can bid for shares at various price levels. Normally, the demand for shares at the minimum price level is the maximum. But when the market is booming, the issue is often oversubscribed at the higher end of the band itself. In such a case, the offer price is ultimately fixed at the upper end of the band. What is a follow on-public offer?When a listed company makes a public offer to raise funds, it is called a follow-on public offer. In these cases too, the offer price can be fixed or be discovered through book-building. Normally, the offer price is at a 10-20% discount to the prevailing share price in the market.
Other ways to raise funds from market?
A company can raise funds through a rights issue. In this, the company gives shares only to existing share holders at a certain ratio to the number of shares already owned. For example, in the case of SBI, one rights share is to be given for every five SBI share owned. Normally, a rights issue has the twin purposes of rewarding the shareholders of the company and raising funds. Shares are, therefore, typically offered at a 30-50 % discount to the prevailing market price. Therefore, just before a rights issue, the share price of the company goes up.
In a rights issue, how is the entitlement of shares fixed?
In a rights issue, a cut-off date is fixed, known as the record date. Rights shares are given to those share holders who own the company’s shares on the record date. For example, in case of SBI, the record date is fixed at February 4. That means, rights shares will be given to those investors who own SBI shares on February 4. If one buys an SBI share after February 4, he will not be entitled for the rights share despite the fact that the rights share will be issued after that date. Similarly, if one sells share after February 4, he will still get the rights shares of SBI.
What is offer for sale of equity shares?
In an offer for sale, equity shares of a company are offered by large shareholders, who can be promoters also, to the public. When the Government of India divests its holdings in a public sector company, for instance, it makes an offer for sale. One famous issue of this kind was ONGC's issue of around Rs 10,000 crore, in which GoI had divested its holding in the company. In an offer for sale, the money raised goes to the seller of the stake and the company is not benefited. But, this is also treated as a public issue and follows all the rules of public offerings of shares.
ULIP as a tax saving tool
ULIP as a tax saving tool
Unit Linked Insurance Plans (ULIP) offers an important source for saving on tax and taking an insurance cover. ULIPs aim to match the equity market return while keeping the risk cover and tax benefit. ULIPs offer high returns, risk cover and tax benefit. The premiums paid by the investor are invested in a mutual fund type of investment instrument.
Unit Linked Insurance Plans (ULIP) offers an important source for saving on tax and taking an insurance cover. ULIPs aim to match the equity market return while keeping the risk cover and tax benefit. ULIPs offer high returns, risk cover and tax benefit. The premiums paid by the investor are invested in a mutual fund type of investment instrument.
Some plans guarantee the capital invested in the form of premiums paid, reducing the risk associated usually with other forms of equity related investments. As the tenure of these plans is pretty long - upto 15 years - the risk of market fluctuations is taken care of.The cyclical variations are addressed because the investment horizon is pretty long. At the time of investment, the premium payments are converted into units at a NAV. The Fund invests in equity and debt instruments.
ULIPS are flexible and are also quite liquid in nature. ULIPs have a lock-in period of three years. Beyond this period, one can sell the units any time.
The investments are eligible for tax break under Section 80C of the Income Tax Act. The maximum eligible amount of investment under Section 80C is Rs 100,000. Under Section 10(10D) of the IT Act, the maturity proceeds are tax-free.
In a unit plan, the investor makes his contribution to the insurance company / fund. The insurance company / fund use this amount for making investments. The investments are divided into units. Whenever a contribution is made by the investor, the numbers of units to his credit are increased, depending on the market price of the units. A small part of the contribution is allocated towards the insurance cover. In case of unfortunate death of the investor, the beneficiaries of the insured are paid a lump sum benefit as the insurance cover.
On the expiry of the term of the plan, or at any time prior to that, if the investor wishes to exit, the number of units to the credit of the investor is paid off at the prevailing market rate of the units which again is governed by the NAV of the fund. Investors have the flexibility to choose the funds and to change them during the course of time, depending on his strategies and perception of the markets. The price of the units is based on the Net Asset Values (NAV) of the plan, which in turn is determined on the basis of the investment portfolio of the plan. The prices of the units tend to fluctuate over a period of time, depending on the movement in the NAV of the fund. The volatility of the unit prices during the course of the contract effect the overall returns of the investors.
The plans are quite flexible and the investor is given options of switching from one option to the other depending on his preferences - for e.g. changing the mix of debt and equity. Although they promise high returns, it is not free of risk. One needs to make cautious and informed judgment about the amount, the type of fund and tenure of investment. Also, being a hybrid product offering insurance and investment, the amount allocated toward investment is reduced not only by the amount allocated towards insurance, but also because of the other administrative charges which are loaded on the fund.
Initially UTI and LIC had launched such plans. Now other insurance players have also launched these unit plans.
Basically, unit linked insurance plans tend to offer insurance cover along with the savings and some return on the investment.The money paid towards the unit plans is partly spent on the purchase of units of the plan and the balance part is allocated towards the insurance premium. So this product acts as a dual product, in addition to the tax savings.
Thursday, February 7, 2008
Bajaj Allianz Life Insurance gets ISO certification
Bajaj Allianz LIfe Insurance Co has received the coveted security certification of ISO 27001:2005 based on its compliance with new standards for data and information security set forth by ISO. Bajaj Allianz becomes the first insurance company in India to receive this certification and recognition.
Source: ET Finance dated 7th Feb 2008
Source: ET Finance dated 7th Feb 2008
Wednesday, February 6, 2008
HDFC Bank first to get high S & P rating
Standard & Poor's (S&P) has assigned a 'BBB-' rating for the long-term and an 'A-3' short term counterparty credit rating to HDFC Bank. HDFC Bank, which is the second largest private sector bank, is the first bank in India to receive such a high credit rating. S&P has declared a stable outlook on the bank and has assigned a 'C' rating for the fundamental strength of the bank. As per a S&P release, the ratings reflect bank's strong market position in the domestic industry, good financial profile supported by strong earnings, healthy capitalisation, good loan quality and diversification, apart from bank's sound management.
Source: Economic Finance dated 18th Jan 2008
Source: Economic Finance dated 18th Jan 2008
Sunday, January 27, 2008
IRDA bans ulip products of Bajaj Allianz and Aviva
http://www.businessstandard.com/common/storypage_c.php?leftnm=10&autono=294850
Complex ULIP face Irda whip
BS Reporter / Mumbai August 17, 2007
Irda bans unit-linked insurance plans which charges are based on complex structure.
The Insurance Regulatory and Development Authority of India (Irda) has banned unit-linked insurance plans (ULIPs) in which charges are based on a complex structure, making it difficult for policyholders to comprehend.
Such products in insurance parlance are called acturial-funded products. The ban would require Aviva Life Insurance to withdraw all its 14 ULIP products, while Bajaj Allianz one of its ULIPs called Capital Unit Gain.
Bajaj Allianz has been directed to withdraw Capital Unit Gain, the deadline for which is the end of next week, while the regulator has been a little considerate with Aviva Life Insurance. Irda has not set any deadline for Aviva to withdraw its ULIP products as the company would need more time to develop new products and then seek the regulator's approval.
“Bajaj Allianz has been given a time frame of 15 days. Aviva Life will have to introduce a new set of products to replace the ones they are using right now and will, therefore, be given more time,” said C S Rao, chairman, Irda.
Insurance sources said Bajaj Allianz Life reported a profit of Rs 30 crore in the first quarter of 2007-08 and Rs 63 crore in 2006-07 mainly on account of Capital Unit Gain.
Under the other ULIP schemes, charges are deducted upfront when the premiums are paid, which could range up to 40 per cent in the first year.
In acturial funded products, the first-year premium is treated as initial premium and is put under an initial management account called acturial funding. Every year 5 per cent of the premium is deducted as initial management cost and 5 per cent as premium allocation charge.
In the second policy year, again a 5 per cent charge is deducted as premium allocation and another 5 per cent from the first year premium as initial management cost. So, for every year a customer loses 5 per cent as premium allocation and 5 per cent as initial management charges.
Assuming that the policy tenure is 20 years and the customer wants to withdraw after three years, the policyholder loses 100 per cent of premium net of charges, 75 per cent if his policy tenure is a 15-year policy and 50 per cent if it is a 10-year policy.
“Acturial-funded products mislead customers into feeling that they have more benefits. While normal ULIP products charge policyholders upfront for all administration and fund management expenses, an acturial funded product will spread it over a period of time. So, a policyholder feels that he has got a larger number of units. Such products are not in the larger interests of the policyholders,” said Rao.
“In several western countries, regulators realised that these products are misleading and have asked companies to withdraw them,” said Rao.
When asked why the Irda approved these products in the first place, Rao said, “It is only after a product is marketed that you realise all the loopholes and then you make a correction. Three weeks ago, the Irda had asked the Acturial Society of India to give its opinion on acturial funded products and it was suggested that these products are not appropriate.”
Bajaj Allianz officials were unavailable for comment. An Aviva spokesperson said: “We have had no communication from Irda on any ban of actuarial-funded products. All our products, including the ones where actuarial funding has been used, have been pre-approved by Irda and are designed on sound actuarial principles. We have been selling these products for years in the country, and these have been approved by the regulator as they follow all guidelines and regulations laid down by the Irda. None of our products is detrimental to the interest of any existing or prospective customers. One of our actuarial funded products was approved as recently as May 2007.”
THE ORDER
· The ban would require Aviva Life Insurance to withdraw all its 14 ULIP products
· Bajaj Allianz will have to withdraw one of its ULIPs called Capital Unit Gain
· Bajaj Allianz has been directed to withdraw Capital Unit Gain, the deadline for which is the end of next week
· IRDA has not set any deadline for Aviva to withdraw its ULIP products as the company would need more time to develop new products and then seek the regulator's approval
Complex ULIP face Irda whip
BS Reporter / Mumbai August 17, 2007
Irda bans unit-linked insurance plans which charges are based on complex structure.
The Insurance Regulatory and Development Authority of India (Irda) has banned unit-linked insurance plans (ULIPs) in which charges are based on a complex structure, making it difficult for policyholders to comprehend.
Such products in insurance parlance are called acturial-funded products. The ban would require Aviva Life Insurance to withdraw all its 14 ULIP products, while Bajaj Allianz one of its ULIPs called Capital Unit Gain.
Bajaj Allianz has been directed to withdraw Capital Unit Gain, the deadline for which is the end of next week, while the regulator has been a little considerate with Aviva Life Insurance. Irda has not set any deadline for Aviva to withdraw its ULIP products as the company would need more time to develop new products and then seek the regulator's approval.
“Bajaj Allianz has been given a time frame of 15 days. Aviva Life will have to introduce a new set of products to replace the ones they are using right now and will, therefore, be given more time,” said C S Rao, chairman, Irda.
Insurance sources said Bajaj Allianz Life reported a profit of Rs 30 crore in the first quarter of 2007-08 and Rs 63 crore in 2006-07 mainly on account of Capital Unit Gain.
Under the other ULIP schemes, charges are deducted upfront when the premiums are paid, which could range up to 40 per cent in the first year.
In acturial funded products, the first-year premium is treated as initial premium and is put under an initial management account called acturial funding. Every year 5 per cent of the premium is deducted as initial management cost and 5 per cent as premium allocation charge.
In the second policy year, again a 5 per cent charge is deducted as premium allocation and another 5 per cent from the first year premium as initial management cost. So, for every year a customer loses 5 per cent as premium allocation and 5 per cent as initial management charges.
Assuming that the policy tenure is 20 years and the customer wants to withdraw after three years, the policyholder loses 100 per cent of premium net of charges, 75 per cent if his policy tenure is a 15-year policy and 50 per cent if it is a 10-year policy.
“Acturial-funded products mislead customers into feeling that they have more benefits. While normal ULIP products charge policyholders upfront for all administration and fund management expenses, an acturial funded product will spread it over a period of time. So, a policyholder feels that he has got a larger number of units. Such products are not in the larger interests of the policyholders,” said Rao.
“In several western countries, regulators realised that these products are misleading and have asked companies to withdraw them,” said Rao.
When asked why the Irda approved these products in the first place, Rao said, “It is only after a product is marketed that you realise all the loopholes and then you make a correction. Three weeks ago, the Irda had asked the Acturial Society of India to give its opinion on acturial funded products and it was suggested that these products are not appropriate.”
Bajaj Allianz officials were unavailable for comment. An Aviva spokesperson said: “We have had no communication from Irda on any ban of actuarial-funded products. All our products, including the ones where actuarial funding has been used, have been pre-approved by Irda and are designed on sound actuarial principles. We have been selling these products for years in the country, and these have been approved by the regulator as they follow all guidelines and regulations laid down by the Irda. None of our products is detrimental to the interest of any existing or prospective customers. One of our actuarial funded products was approved as recently as May 2007.”
THE ORDER
· The ban would require Aviva Life Insurance to withdraw all its 14 ULIP products
· Bajaj Allianz will have to withdraw one of its ULIPs called Capital Unit Gain
· Bajaj Allianz has been directed to withdraw Capital Unit Gain, the deadline for which is the end of next week
· IRDA has not set any deadline for Aviva to withdraw its ULIP products as the company would need more time to develop new products and then seek the regulator's approval
Subscribe to:
Posts (Atom)