Topic 2: Coming Soon! Index-linked products for life insurance policyholders on the anvil
Soon, you may be able to invest in Index Linked Products to be offered by life insurance companies. The IRDAI has set up a working group on Index Linked Products to examine the various aspects of Index Linked Products in the life insurance segment.
The Authority in its recent circular has stated that it is in receipt of requests from life insurers to allow them to offer index-linked products. As per the IRDAI rules, product regulations do not specifically permit insurers to sell index-linked products.
As of now, in Ulips, one may invest in any of the fund options representing various asset classes such as equity or debt. However, the funds are actively managed by a fund manager and are benchmarked to an index. On the contrary, in an index-linked fund, there is no role of the fund manager. The investments in index funds mirrors the index that it tracks in the same weightage as per the index. The performance, therefore, is similar to the index which the fund tracks. The fund management charges, therefore, are very low in them compared to actively-managed funds.
The terms of reference of the Working Group are as follows:
-To examine the need for index-linked products in India especially with respect to availability of various indexes and how it will better serve the needs and interests of customers relative to traditional savings products.
-To examine the Index linked products, which were earlier available for sale in the Indian market in terms of product structure, ease of customer understanding and administrative processes, sales volumes and any other matter of relevance.
-To study practices of other jurisdictions in respect of Index Linked product structure and their operations.
-To provide recommendations on specific aspects like product structure and its pricing and reserving along with suggestions on possible amendments to the current regulations like Product and Investment Regulation.
The Authority in its recent circular has stated that it is in receipt of requests from life insurers to allow them to offer index-linked products. As per the IRDAI rules, product regulations do not specifically permit insurers to sell index-linked products.
As of now, in Ulips, one may invest in any of the fund options representing various asset classes such as equity or debt. However, the funds are actively managed by a fund manager and are benchmarked to an index. On the contrary, in an index-linked fund, there is no role of the fund manager. The investments in index funds mirrors the index that it tracks in the same weightage as per the index. The performance, therefore, is similar to the index which the fund tracks. The fund management charges, therefore, are very low in them compared to actively-managed funds.
The terms of reference of the Working Group are as follows:
-To examine the need for index-linked products in India especially with respect to availability of various indexes and how it will better serve the needs and interests of customers relative to traditional savings products.
-To examine the Index linked products, which were earlier available for sale in the Indian market in terms of product structure, ease of customer understanding and administrative processes, sales volumes and any other matter of relevance.
-To study practices of other jurisdictions in respect of Index Linked product structure and their operations.
-To provide recommendations on specific aspects like product structure and its pricing and reserving along with suggestions on possible amendments to the current regulations like Product and Investment Regulation.