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| October 1, 2010 |
Impact 
Finally the new norms (which came into effect on September 1, 2010) for regulating Unit-linked Insurance Plans (ULIPs) showed the effect on the number of ULIP plans floated in the market. In the month of August 2010, at least 208 ULIPs have been withdrawn from the market. Among the new ULIPs, approximately 42 new ULIPs were launched in September 2010.
| Insurers |
No. of ULIPs Withdrawn |
| Reliance Life |
30 |
| Tata AIG Life |
22 |
| Bajaj Allianz Life |
16 |
| HDFC Standard Life |
15 |
| ICICI Prudential Life |
12 |
| AVIVA Life |
10 |
| Shriram Life |
9 |
| Birla Sun Life |
9 |
| SBI Life |
8 |
| Others |
77 |
| Total |
208 |
(Source: IRDA)
Sharing his views, Mr. Rahul Agarwal of Optima Broking said, "With a new set of guidelines for ULIPs policies from the regulator, effective from September 1, the practice of launching one policy every quarter and then creating a marketing buzz around the product as well as pushing agents to sell these will now be replaced by only about one policy in every category. For example, insurers may now have one policy each in guaranteed return category, highest NAV, one for child protection and one normal endowment."
Mr. Ravi Trivedi - Executive Director at KPMG also said, "Insurers will focus on rationalisation and retention of clients. Additionally, with all the new guidelines that cap commissions and surrender values, insurers now need more time to design their products."
We think that after the IRDA initiative (regulation of new ULIPs) realisation seems to have dawned upon insurers to get fewer, but understandable products. In our opinion this appears to be an investor friendly move, as it may make products simpler to understand.
Many thanks to Insurance Development and Regulatory Authority (IRDA)!!
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Impact
Mr. C.B. Bhave - Chairman of the Securities and Exchange Board of India (SEBI), stepped in, this time to uphold retail investor's interest in the Initial Public Offerings (IPOs). Mr. Bhave charged investment bankers for fleecing investors by pricing IPOs at astronomical valuations, leading to investor anguish when the market tide turns.
"In a bid to maximise returns for promoters, they (investment bankers) are not looking at the interests of investors. You need to introspect whether it is a healthy practice. If you keep investors disappointed day in and day out, the cause of investors will only be a lip service.", said Mr. Bhave.
The critical comments from the capital market regulator came in as a lot of these IPOs do not yield much returns to investors in their early years as they tend to tumble steeper during the downswings of the equity markets, since initially they are sold at prices steeper than their fundamentals justify.
(Base:  10,000)
(Source: ACE MF, BSE)
Mr. Nagendra Bhatnagar - Chairman of Association of Merchant Bankers in India, and MD, IDBI Capital Market Services also reacted to this by saying, "It is not only the investor who suffers but also the credibility of the merchant banker, if the IPO does not offer returns to the investor."
We believe that such a step towards making IPOs fairly priced will make them (IPO) affordable and exude confidence amongst retail investors. Also in the long term it would be beneficial both to the company as well as the investors, as fairly priced companies can withstand turbulent times and contain wealth (of investors) erosion.
Are you investing in IPOs, at these new peaks of the Indian equity markets? -
Click here to share your views with us on our Facebook page.
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Impact
 The hike in the EPF rate to 9.5% has been very short-lived as the Finance Ministry notification said that anything in excess of 8.5% on EPF is taxable. Hence, this again makes the EPF tax free at 8.5% which was the case earlier.
However on this issue, the Labour Ministry is confident that the tax department will re-notify the higher rate, as otherwise a lot of contentious issues will come up.
Moreover, usually the income tax department notifies a tax-free PF rate for the whole year. But this year, it's only applicable from September 1, 2010. So, the 9.5% provident fund return would be tax-free from April to August, but taxable thereafter.
We think that the Employees Provident Fund Organisation (EPFO) will find it most difficult to implement the notification of deducting the applicable tax as firstly it does not have systems in place to deduct tax at source and secondly it would next to impossible to mail 5 crore (EPFO manages 5 crore PF accounts) Form 16 statements. To add to the apathy of the EPFO, the applicable income tax bracket would vary for its members which will result in different tax deductions for each account holder.
So, in our opinion the hike in EPF to 9.5% seems to be for name sake, as the tax department has stepped in to have its share.
To read more on the EPF rate hike gimmick, CLICK HERE
Click here to share your views with us on the EPF rate hike, and the tax levied by the Government on the additional 1% increase, on our facebook page.
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| Weekly Facts |
| |
Close |
Change |
%Change |
| BSE Sensex |
20,069.12 |
208.1 |
1.05% |
| Re/US$ |
44.95 |
0.7 |
1.55% |
Gold  /10g |
19,150.00 |
(60.0) |
-0.31% |
| Crude ($/barrel) |
80.06 |
2.5 |
3.28% |
| FD Rates (1-Yr) |
6.25% - 7.10% |
Weekly change as on Sep 30, 2010
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In this issue
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In an interview with the Business Standard, Ms. Ashu Suyash – MD and Country Head of FIL Fund Management expressed her views on the Indian equity markets and how investors should strategise their investments.
Ms. Suyash is fairly positive on the Indian economy's long-term growth prospects. She's also of the view that with India's large youth population, consumption and capital would increase if savings are channelized well. "If these result in an investment-led uptick in growth, the medium- to long-term prospects look good", she said. However, in the short-term in her opinion, we are likely to be more vulnerable to global happenings.
According to her while investing in the Indian equity markets, investors need to assess their saving capability, time horizon and risk appetite. And if one’s outlook is more than 6 months, one should not time the market. In her opinion investors should go through the SIP (Systematic Investment Plan) route, as they provide investors the advantage of compounding and help them to average costs. She’s also of the view that investors often forget to top-up their investments with every rise in the salary, and that’s where wealth creation begins to fall short of aspirations. “Remember, if you don’t increase investments every year, inflation will eat your savings”, she says. |
Provident Fund: A fund into which the employer and the employee both pay money regularly, so that when the employee retires or leaves the company, he or she receives a sum of money.
(Source: Financial Times LEXICON)
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QUOTE OF THE WEEK
"Emotions are your worst enemy in the stock market."
- Don Hays
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This Week's Poll !!!
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- The new Index of Industrial Production (IIP) with base year of 2004-05 is likely to be released by the end of 2010. The new IIP series with 2004-05 base year is likely to include new items such as mobile phones, liquid crystal display televisions, computers and laptops and several chemicals and pharmaceuticals that were not manufactured in the country when the base year was revised in 1993-94.
- Bajaj Allianz General Insurance Company has increased its premium in health insurance by 10-12%.
Hemant Kaul, CEO, Bajaj Allianz General Insurance, said that, "At a time when mediclaim inflation is soaring at 18%, it is quite obvious for us to increase the premium price of health insurance."
- Indian stock exchanges having ambition of launching trading facility overseas, will have to wait for some more months as SEBI is working on a detailed regulatory framework to govern cross-listing arrangements.
According to a person privy to the development, the regulator aims to get only "good quality" indices in India and so would lay down the criteria for market capitalisation and liquidity. Only those overseas indices that fulfil these criteria would be allowed to trade on the Indian bourses.
- Next time if you get a call from telemarketer for buying an insurance policy, and you end up buying one (insurance policy) through these telemarketing companies; you can obtain a copy of the conversation either in the form of a transcript or a Compact Disc (CD) from the Insurance company, as an evidence to what was promised to you by the telemarketer.
The Insurance Regulatory and Development Authority (IRDA) has directed the insurance companies to ensure that clients get a copy of either the recording or transcript of the conversation with the telemarketer.
Hence now according to the IRDA norms, the caller has to stick to a standard script while selling over the phone. Immediately on calling, he has to correctly identify the insurance company he is representing in order to ensure that the customer is not confused into believing that he is buying from a bank or a mutual fund. After introducing himself and explaining the nature of the call, the caller should check whether the prospect has any interest in buying the cover.
- UTI Mutual Fund's Chairman and MD, Mr. U. K. Sinha has been appointed as the Chairman of Association of Mutual Funds in India (AMFI), while HDFC Mutual Fund's MD Milind Barve has been appointed as the Vice-Chairman of AMFI.
The duo will hold office till the next Annual General Meeting (AGM).
- The insurance regulator - IRDA, has expressed that health and motor insurance policyholders may soon be allowed to switch insurance companies.
Mr. J. Hari Narayan – Chairman of IRDA said, the regulator is working on guidelines to allow such non-life policyholders policy portability, or the option to switch their insurance firms, without needing to change the terms and conditions of their existing policies. "In the health space, we are considering mandating portability across products," he said.
Mr. Hari Narayan also cited that this practice of portability is followed globally.
Portability has a long standing demand of the insurance industry, but is barred as per current norms. In our opinion if the new move does go through, it could provide significant relief to policyholders in terms of switching providers, to get the best possible service.
We also think that such a move will also call for standardization of products mandatory, if IRDA intends to keep the terms and conditions of the policy unchanged.
- Power Grid Corporation, the State-owned power utility company is likely to come out with its Follow-on Public Offer (FPO) in the second week of November 2010.
The Chairman and Managing Director Mr. S K Chaturvedi said, "In all likelihood, in the second week of November, we will be able to bring our FPO. We are hopeful of raising 8,600 crore of which 4,300 crore would go to the government and the remaining would come to us."
- The core sector comprising of six key infrastructure industries - crude oil, petroleum refining, coal, electricity, cement and finished steel, grew at 3.7% in August 2010 as compared with 6.4% last year. In July 2010, the growth was 4%.
The six key infrastructure industries have a combined weight of 27.6% in the Index of Industrial Production (IIP).
Hence the slow growth in the core sector may lead to dampening of August 2010 IIP data (expected on October 12, 2010) and also affect the overall economic growth (GDP growth) of the country.
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