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| August 19, 2016 |
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Impact 
The excess monsoon struck the normal life in different states of India this year. As per the report published by the Ministry of Home Affairs, floods have affected over 5,300 villages and approximately 1.3 crore people. Uttar Pradesh, Bihar, Meghalaya, and Madhya Pradesh have been the worst hit areas. Even the regions that are unaffected by the floods per se have also reported cases of severe water logging. When a roof provides no shelter and water starts flooding into houses, affected people find it difficult to decide upon which of their belongings they should save first. Most of the time it happens that, high-value consumer durable goods such as TV and Fridge get the priority. Flooding water gives you no time to search for important documents. You can only hope that doors of your cupboards are good enough not to allow floodwater damage the papers and other belongings kept inside. But the reality is many a time people lose certificates, receipts, and other relevant documents when there's a flood like situation. And let's not forget, along with residential properties even commercial establishments in the flood-prone areas are affected. So if floodwater damaged records maintained in one office, it could potentially affect many more people.
Losing important documents or getting them damaged can make you pay a hefty price in future. One of the simplest ways to avoid damages to the important papers and records is to store them in electronic format wherever possible. Insurance Regulatory and Development Authority (IRDA) has been playing its part in encouraging insurance companies and policyholders to maintain records in electronic formats. From October 01, 2016, insurance companies will deliver policies in a paperless form, provided your sum assured or the premium payment satisfy the preset criteria.
Criteria for providing insurance policies in the electronic form | Type of Insurance | Sum Assured of at least | Single Premium or annual premium of atleast | | Pure Term Insurance (will not include term plans with the provision of 'return of premium' | Rs 10,00,000 | Rs 10,000 | | Other than pure term insurance policies | Rs 10,00,000 | Rs 10,000 | | Pension policies | N.A. | Rs 10,000 | | Immediate annuities | N.A. | Rs 10,000 | | All retail General Insurance policies except Motor insurance | Rs 10,00,000 | Rs 5,000 | | Individual health insurance policies | Rs 5,00,000 | Rs 5,000 | | All retail motor insurance policies | All policies | | Individual Personal Accident & Domestic Travel | Rs 10,00,000 | Rs 5,000 | | Individual Travel Insurance (Overseas) | All policies |
(Source: IRDA)
Moreover, IRDA has also made it mandatory for insurance companies to issue e-insurance policies in disaster-prone and vulnerable areas specified by the authority.
Why is e-insurance mutually beneficial to insurance companies and insurance buyers?
E-insurance . will reduce the paperwork involved in the issuance and maintenance of insurance policies. It will also allow insurance companies to offer discounts to pass on the cost savings. With the emergence of e-insurance, policyholders will no longer be forced to preserve the original policy documents. In the current structure, if you lose the original policy papers, applying for the duplicate ones is tedious, and it involves launching an FIR and providing indemnity bonds. E-insurance will also shield insurance buyers from instances of frauds occurring due to fake documents and forged signatures.
How will this transition happen?
To receive insurance policies electronically, insurance buyers will have to open e-Insurance Accounts (eIA). Here, the insurance companies will play a role of a facilitator by involving their agents to create awareness about the new development. NSDL Database Management, SHCIL Projects, Central Insurance Repository, CAMS Repository Service and Karvy Insurance Repository are the five registered repositories. The existing and prospective buyers can utilise the services of any of these companies for opening an eIA.
The challenges ...
Given the low penetration of internet, lack of awareness, digital illiteracy, opening eIA and filling up the insurance proposal forms in electronic form would be a challenge. The companies will have a task of convincing people to open eIA.
PersonalFN is of the view that, like in the case of equity shares, holding insurance policies in the e-form has many advantages. Hence, the IRDA's move to make it mandatory to issuing all new policies meeting specified criteria in the digital form is a step in the right direction. This is a positive for the development of the Indian Insurance Industry. However for it to achieve its true potential, the insurance industry must rein in malpractices and misselling that widely prevail at present.
Would you be comfortable holding your insurance policies in an electronic form? Share your views
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Impact
The Securities and Exchange Board of India (SEBI) has been making mutual fund houses more accountable for their decisions day-after-day. The mutual fund industry has a significant exposure to Indian listed companies and if it exercises its rights as a shareholder, overall quality of corporate governance may improve in India.
Keeping this in mind, SEBI nudged mutual fund houses, a couple of years ago, to vote actively on important issues that require approval from the majority of shareholders. Before that, mutual fund houses preferred to remain silent on vital issues. However, soon after SEBI tightened the screws, Asset Management Companies (AMCs) started questioning companies on subjects ranging from the appointment of directors to sale or transfer of assets. To make them more accountable, SEBI directed them to release a summary of their votes explaining the rationale for each of their votes on a quarterly basis. This practice seems to have kept many Indian corporate under check that otherwise take minority shareholders for granted. But collectively mutual funds have been able to create enough pressure on them to act prudently.
Seeing the positive results of its previous moves, SEBI is now keen on moving to the next level of compliance. It now wants mutual fund houses to appoint a scrutiniser who can be a Chartered Accountant, Cost Accountant or a lawyer or a company secretary and is not on the payroll of the enterprise. The scrutiniser will review the rationale of votes cast by mutual funds on the corporate decision. He/she will issue a certificate every year stating that the AMC has disclosed and scrutinised its voting reports. Also, the board of AMCs and mutual fund trustees will have to reappraise the AMCs stand on important corporate decision wherein AMCs are required to vote. They will also have to ensure that the AMC has voted on all decisions that may potentially affect the mutual fund investors and has provided the rational reasoning for every vote. The outcome of these actions along with the adverse comments of the scrutiniser, if any, shall be reported in the Trustee's report released half-yearly.
PersonalFN is of the view that SEBI's attempt to make mutual funds get the voting report approved by the independent scrutiniser will bring in more transparency and accountability to the operations of mutual funds. PersonalFN believes this compliance requirement shouldn't be viewed as an instance of overregulation, but should be looked upon as a cautious decision by the regulator to protect the interest of mutual fund investors.
From time to time, PersonalFN has written about SEBI's actions urging AMCs to adopt a prudent approach while voting on important corporate issues.
Why companies can't take mutual funds for granted anymore?
Mutual funds to become more accountable, read this!
Are fund managers protecting your interest?
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Impact
Indians have an insatiable appetite for gold, but when it comes to investing in Gold Exchange Traded Funds (ETFs), it seems there's a complete apathy. No wonder then the Assets Under Management (AUM) of Gold ETFs have been struggling to rise at a time when the overall AUM of the mutual fund industry has hit an all-time high. Over last 1 year, AUM of gold ETFs has increased by approximately 9.1% whereas the mutual fund industry has grown by about 15.2%.
Are gold ETFs losing shine?
(Source: AMFI, PersonalFN Research)
The month-on-month trend in the AUM of gold ETFs suggests that investors have followed a trader's approach while taking exposure to the precious yellow metal in paper form. They have not only been looking at the gold price movements, but at the movement of stock market indices as well. At the beginning of the Calendar Year (CY) 2016 gold had dropped considerably. Spike-up one may see in the above graph in February suggests that investors accumulated units of gold ETFs. During the same time period, equity markets were shaky. On the other hand, in July, stock markets were high and gold prices somewhat saturated after jumping more than 25% from the beginning of CY 2016. As a result, gold ETFs witnessed massive outflows of Rs 183 crore.
To ready more about this story and Personal FN's views over it, please click here.
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Impact
Mutual Fund houses have been using unique tricks to expand their Assets Under Management (AUM) these days. Until recently, many of them were launching New Fund Offers (NFOs), selling old wine in a new bottle. Now that the Securities and Exchange Board of India (SEBI) has been categorically expressing its disappointment about this practice, mutual fund houses are trying to promote existing schemes in an unhealthy way.
As you may be aware, equity valuations have become expensive nowadays, thanks to a continuous flow of foreign capital and sustained buying by domestic investors as well. Under such a scenario valuation, cautious investors usually shy away from investing in equity oriented funds. To attract them, some fund houses have been promoting balanced funds as regular dividend paying funds.
Although this policy is argued to have been adopted only for "existing folios", the fund houses haven't been denying the possibility of continuing with this practice. In fact, a few of them have intelligently distributed a dividend at a fixed rate for a few months, and now have been communicating informally through distributors and agents that such payments are likely to continue even in future. They have been backing this argument claiming that they have a distributable surplus which will suffice for months to come.
To ready more about this story and Personal FN's views over it, please click here.
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Many insurance companies are likely to get listed on stock exchanges in the next 3 years. In a move to improve disclosure norms for insurance companies and allow investors to participate in the growth of the Indian insurance industry, IRDA is pondering on the idea of making it mandatory for general insurance companies to go public. If it becomes a reality, then general insurance companies that have completed 8 years of operations and life insurance companies with 10 years of existence will have to get themselves listed on stock exchanges. However, LIC would be excluded from the proposed rules as it is governed by the Special Act.
PersonalFN is of the view that, investors shouldn't get swayed by the spread of the operations of the insurance companies as and when they go public. On the contrary, they should judge every insurance company on prudently set parameters before investing in them. Those who don't have time or expertise to analyse and invest in stocks should take the mutual fund route. By investing in mutual funds, make sure that a team of professional will always be caring for your investments.
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Voting Right: A voting right is the right of a stockholder to vote on who will make up the board of directors and on matters of corporate policy, including decisions on issuing securities, initiating corporate actions and making substantial changes in the corporation's operations. It is common for shareholders to voice their vote by proxy by mailing in their response. Unlike the single vote right that individuals commonly possess in democratic governments, the number of votes a shareholder has corresponds to the number of shares he owns.
(Source: Investopedia)
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Quote : "The most important quality for an investor is temperament, not intellect."- Warren Buffett
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