Act IV, scene 2: Ulip clean-up

Expense Account, Mint

Why has cost become so central to the insurance product? Nobody talked about costs for decades when we all bought endowment and money-back plans. Those of us who are old enough to have these in our portfolio remember how they were sold—the promise was of a certain sum that would come back, either periodically, or at the end of 10 to 15 to 20 years. That Rs20,000 a year would finally come back as Rs3.8 lakh after 15 years. If this meant a rate of return of just 3.5%, we were happy to buy into the product for the comfort of having the neighbour uncle push us into investing, the compounding and of course, the tax break. Nobody thought of cost because in a guaranteed return product, cost does not matter to the investor since he is looking at what he puts in and what he gets back. And if the return was just 3.5%, and he was fine with it, he invested.

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Sebi-Irda tiff: who wins, who loses

Expense Account, Mint

The government has made the Insurance Regulatory and Development Authority (Irda) the sole regulator of unit-linked insurance plans (Ulip) and amended the Acts governing other regulators to make its intentions clear. I have two views on this handing over of a hybrid product to one regulator instead of a joint-regulation mechanism with the Securities and Exchange Board of India (Sebi)—a precedent for which exists between the banking and capital market regulators. One leads to a process of harmonization of the market place in which investors (and the country) win. The second leads to a situation where the investor invests in financial products at his own risk because the government backs institutional cheating in a country where lobbyists with vested interests win. The consumer loses.

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Calvinball works for 2, not 188 mn

Expense Account, Mint

Calvin and Hobbes play this wonderful game called Calvinball. The key feature of the game is that it operates under rules, but these are “subject to be changed, amended, or deleted by any player(s) involved. These rules are not required, nor necessary to play Calvinball”. This game looks suspiciously like the Indian financial product intermediation space. All regulators can point to pages and pages of rules. But when you play the game, all these are ignored to form completely new ones as the game goes along.

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A suitable financial product

Expense Account, Min

My phone rings. It is an uncle who has just turned 60 wanting to know if he was doing the right thing with his retirement corpus. He’d called in a neighbour’s kid for advice. The kid works in a large private sector bank. She offered a bouquet of unit-linked insurance plans (Ulips) at once. Not a single premium plan or even an annuity, but a regular premium 100% equity-oriented Ulip that would need a premium infusion each year for the next 10 years.

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