Unit-linked insurance plans: deviating from insurance?

There are regulatory arbitrages and then there are arbitrages between regulators. Regulatory arbitrages are not uncommon. What may be uncommon is a regulator mediating to ensure a level playing field for its constituents!

Deeply concerned with mis-selling and investors being misled into the unnecessary churning of portfolios by distributors, the Securities Exchange Board of India (SEBI) recently implemented a series of measures with regards to Indian mutual funds. This culminated in SEBI mandating in August 2009 that there would be no entry load and exit load on investors subscribing and/or redeeming mutual fund (MF) units. Undoubtedly noble intentions!

Unfortunately what little incentive distributors or financial advisers once possessed has now disappeared. This has resulted in a reluctance on their part to push MF units as an investment avenue. Instead, now they are only mis-selling unit-linked insurance plans (ULIPs).

Sonali Sharma is a partner and Bharat Budholia is an associate at Juris Corp, a Mumbai-based firm that specializes in banking and finance, foreign investments, private equity, direct tax, bankruptcy and restructuring, M&A, insurance, energy and infrastructure, dispute resolution and international arbitration.