Impact 
 The Insurance Regulatory and Development Authority (IRDA) had capped distribution costs of Unit-Linked Insurance Plans (ULIPs) last September as a pro-policyholder step to boost returns from ULIPs. However, this didn't go down well with the agents as their commissions dried up and subsequently the ULIP sales. Thus, now to tide over this hangover of low ULIP sales, life insurance companies and agents are looking at 'riders' as their life line.
Life insurance companies and agents are now promoting 'riders', i.e., the add-ons with the base policy. These riders are an alternative source of income (commission of around 22% - 25%) and thus both insurers and agents are pushing these aggressively ever since IRDA capped the commission to agents for selling ULIPs (agents are now entitled to 5% - 10% of the first year's premium instead of the earlier 25% - 30%).
A rider offers a policyholder with extra benefits that are absent in the basic insurance plan. There are a number of riders which include surgical care, hospital care, waiver of premium care, critical illness, accident benefit, permanent disability benefit and guardian benefit. The cost of riders can range from 2% - 20% of the policy premium. However, IRDA has stated that the total premium for riders cannot be more than 30% of the base policy premium.
In our opinion, though a rider along with a base policy gives a policyholder extra benefits at a low cost, it does not entitle him or her to all the benefits which are associated with a standalone policy. Meaning if a policyholder wishes to take a critical illness rider he or she may avail the benefit covering a few critical illnesses but if the same has to be compared with a critical illness policy (not just a rider) where the policyholder gets the coverage for more number of critical illnesses.
We believe that insurance should be considered as a protection measure rather than an investment avenue. One should opt for a term policy with a waiver of premium benefit (which makes sense in case one is disabled and is unable to get employment). Over and above this if a policyholder requires any additional benefits then he or she may go in for standalone policies instead of a rider.
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Impact
 In order to boost the New Pension Scheme (NPS), the Pension Fund Regulatory and Development Authority (PFRDA) has set up an expert panel chaired by former SEBI Chairman Mr. G.N. Bajpai.
According to the recommendations of the expert panel, there will be a charge of 0.5% on every transaction instead of flat fee of  20 paid by individual volunteer members at present. The panel has also recommended:
- Higher commission and fund management charges
- Lower central record keeping charges
- Allowing mobile companies and other private players to distribute the product.
In our opinion this move will improve incentives for sellers and protect the interest of small savers as the charges will be in line with the quantum of investment made. However, big investors would have to shell out more if these recommendations come in force.
Moreover, while engaging mobile companies and other private players may help in reaching wider investor base, care should be taken to ensure mis-selling does not occur as this can be detrimental. PFRDA should educate investors about the product and thus create confidence in the mind of investors. |
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Impact 
The precious yellow metal - gold began the year 2011 on a negative note. Gold prices maintained a downward streak in January, as in the U.S. signs of economic recovery were witnessed and the dollar too got stronger.
- Escalation in oil prices due to political tension in Egypt and Libya
- High unemployment data in the U.S.
- QEII withdrawal talk swirling around
- Debt overhang situation in the Euro Zone
(Source :ACE MF, PersonalFN Research)
However, in the immediate successive four months (February, March, April and May) gold once again displayed a bold up move due to the following reasons:
But later when the immediate fear of Greece defaulting was dispelled (due to austerity measures adopted by Greece Government to secure international funding and avert imminent bankruptcy), along with QEII officially ended on June 30, 2011, the precious yellow metal moved sideways thus taking a breather as immediate negative headwinds are at bay.
However in our opinion, going forward inflationary pressures are likely to haunt most emerging nations including India; and a measure to curb the inflation bug the central banks are likely to be vigilant by raising policy rates. Also while at present the immediate fears of Euro zone are dispelled and economic slowdown for the U.S. has receded, the recovery has to be watched carefully.
Hence nothing has changed for gold fundamentally. It has been and will remain the safe haven to take refuge into in times of economic turmoil and uncertainty. Investors in the precious yellow metal should stay invested and preferably adopt the Systematic Investment Plan (SIP) route available in gold saving funds to take the advantage of rupee cost averaging and enjoy power of compounding by staying invested for atleast 10 to 15 years.
We believe that investor should have 5% to 10% of his portfolio dedicated to this precious yellow metal called "Gold".
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| Weekly Facts |
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Close |
Change |
%Change |
| BSE Sensex* |
18,858.04 |
95.2  |
0.51% |
| Re/US$ |
44.42 |
0.3 |
0.60% |
Gold /10g |
22,080.00 |
115.0 |
0.52% |
| Crude ($/barrel) |
113.92 |
1.5 |
1.35% |
| FD Rates (1-Yr) |
7.25% - 9.25% |
Weekly change as on July 07, 2011
*BSE Sensex as on July 08, 2011
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In this issue
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This Week's Poll !!!
************
Do you opt for riders along with your insurance policy?
To Vote Now!
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In an interview with the Mint, Mr. Sachin Sandhir - Managing Director and Country Head of Royal Institution of Chartered Surveyors (RICS) shared his views on the valuation practice and problems associated with the real estate market in India.
Mr. Sandhir believes that most important problem that affects the valuation practice in the real estate market is the absence of any Act or industry regulatory body to regulate valuation practice. He also points to the fact that anybody connected with civil construction can style himself as a "valuer" and conduct valuation for properties. As a result of which he says there is no standardisation even in the basic principles of valuation practice or norms for valuing assets.
According to Mr. Sandhir, the Indian edition of ‘RICS Valuation Standards-Global and India’ (as known as ‘Red Book’) is the first of its kind initiative in Indian real estate, which will conform to globally consistent standards along with local guidance on valuing assets for different purposes. He further explains that, "the India edition contains local guidance for important valuation applications such as financial reporting under Indian accounting standards, bank lending for residential and commercial properties, taxation purposes such as wealth tax or capital gains tax, and valuation of development land."
Furthermore, he feels that the Red Book will enable individuals to transact (buy/sell) property vis-a-vis an accurate estimation of the market value of a property. Explaining the usefulness of the book he says, "In case of home loans and loan against property, if the valuers engaged by the bank for underwriting home loan are individuals who undertake valuations as prescribed by the Red Book, the property values thus estimated would be more accurate and consistent and buyers would be assured of permissible loans on more reliable valuations."
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Waiver of Premium for Payer Benefit: A clause in an insurance policy that says that the insurance company will not require the insured to pay a fee to maintain the policy under certain conditions. Most commonly, these conditions are the death or disability of the person paying the insurance premiums. The insurance company may charge a higher premium to include this waiver in the policy to compensate for the additional risks presented with a waiver of premium for payer benefit.
(Source: Investopedia)
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QUOTE OF THE WEEK
"Money will come when you are doing the right thing."
-Mike Phillips
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