Mutual Funds to tap pension market
Aug 30, 2000

Author: PersonalFN Content & Research Team

Unit Trust of India (UTI) is toying with the idea of entering the insurance sector. The institution is planning to enter the life and pension segment - the two most popular insurance products currently available in the market. Other top mutual fund players are also planning an entry into unit linked pension and life insurance market.

As per the Securities and Exchange Board of India (Sebi), mutual funds are currently not permitted to enter the insurance segment.

With the deregulation in the insurance sector, the prospective insurers see a vast untapped market for personal pensions in the country. Thus to ensure safety of returns to the insurers, the government is currently devising a suitable regulatory framework.

UTI with its wide distribution base and superior technology will be in a position to offer innovative tailor made insurance products to individuals. The institution currently holds a substantial part of the country's pension population through its pension-linked schemes. Thus it will be easy for the institution to tap this particular segment. Looking at its agency force and huge investor base, UTI is certainly in a better position to enter the life insurance segment.

The mutual fund major, which controls over 66% of the mutual fund market, has signed a memorandum of understanding (MoU) with Australian financial services group -AMP. The MoU envisages that the two institutions jointly explore opportunities in infrastructure investments and a range of financial services, including insurance and banking operations in the country.

UTI currently offers products such as unit-linked insurance plans and pension plans. Currently Unit Trust of India (UTI) has a unit-linked fund which offers limited insurance cover. The institution's Unit Linked Insurance Plan (ULIP) is a unique, multiple benefits plan which combines the basic benefit of life insurance with good returns, tax benefits and accident insurance cover. The plan also offers tax rebate of 20% on the amount invested under section 88 of the Income Tax Act within the overall limit of Rs 60,000. Accident insurance cover available under the plan is up to Rs 50,000.

So far the government owned Life Insurance Corporation has been able to tap less than 40% of the country's life and pension market. On an estimate, potentially insurable population in the country is to the tune of over 147.35 billion lives. As per the national sample survey organisation, it is estimated that only 25% of the households in the low-income group will be a part of the potential for life insurance between the fiscal 2001-2002.