Is it appropriate on the part of a regulatory body to recommend investment in a product that is regulated by it?
An advertisement issued by the Insurance Regulatory and Development Authority (IRDA) last week, asking investors to consider Unit Linked Pension Plans, has raised just such a debate.
“If you have not already provided for regular income/pension during your retired life, consider a Unit Linked Pension Plan,” says the advertisement, which goes on to ask investors to keep in mind five points of advice before deciding to buy a ULIP (Pension).
SEBI missive
The advertisement must also be seen in the light of the recent dispute that arose between IRDA and the stock markets regulator SEBI when the latter wrote to insurance companies asking them to show cause why they did not get its approval for ULIPs, which partly invest in the capital markets.
“It is a possibility that through this advertisement, IRDA simply wanted to signal that ULIP falls clearly within its territory. But in principle, a regulator should not recommend investment or disinvestment in any product that it regulates,” said a legal expert who deals with SEBI-related disputes.
An official at IRDA said it must be seen as an exercise in investor awareness, which as a development authority, IRDA had the right to do.
However, the advertisement's sentence asking investors to consider ULIPs was not acceptable, said the legal expert. “
If it were merely an educational advertisement, it should have stopped short of saying this. It could merely have said that investors putting their money into ULIPs must keep in mind certain points,” he said.
Ban on entry load
The development must also be seen in the light of SEBI banning of entry load on mutual fund investments from August last year.
This caused much heartburn among MF companies who felt that agents would now push ULIPs, which offer commissions as high as 30 per cent.
‘Wrong priorities'
“IRDA have got their priorities all wrong,” said Mr Sandeep Parekh, regulatory expert and faculty member at IIM-Ahmedabad. “They are protecting the industry rather than the investor. It is the only industry perhaps in the world that allows commissions as high as 30 per cent. If Rs 30 out of Rs 100 put in by an investor goes into commissions, then to get his Rs. 100 back itself the investor may have to wait for three or four years.”
Many experts felt that if the advertisement was really “educational”, it should have asked ULIP investors to check the amount of commission paid out.
An advertisement issued by the Insurance Regulatory and Development Authority (IRDA) last week, asking investors to consider Unit Linked Pension Plans, has raised just such a debate.
“If you have not already provided for regular income/pension during your retired life, consider a Unit Linked Pension Plan,” says the advertisement, which goes on to ask investors to keep in mind five points of advice before deciding to buy a ULIP (Pension).
SEBI missive
The advertisement must also be seen in the light of the recent dispute that arose between IRDA and the stock markets regulator SEBI when the latter wrote to insurance companies asking them to show cause why they did not get its approval for ULIPs, which partly invest in the capital markets.
“It is a possibility that through this advertisement, IRDA simply wanted to signal that ULIP falls clearly within its territory. But in principle, a regulator should not recommend investment or disinvestment in any product that it regulates,” said a legal expert who deals with SEBI-related disputes.
An official at IRDA said it must be seen as an exercise in investor awareness, which as a development authority, IRDA had the right to do.
However, the advertisement's sentence asking investors to consider ULIPs was not acceptable, said the legal expert. “
If it were merely an educational advertisement, it should have stopped short of saying this. It could merely have said that investors putting their money into ULIPs must keep in mind certain points,” he said.
Ban on entry load
The development must also be seen in the light of SEBI banning of entry load on mutual fund investments from August last year.
This caused much heartburn among MF companies who felt that agents would now push ULIPs, which offer commissions as high as 30 per cent.
‘Wrong priorities'
“IRDA have got their priorities all wrong,” said Mr Sandeep Parekh, regulatory expert and faculty member at IIM-Ahmedabad. “They are protecting the industry rather than the investor. It is the only industry perhaps in the world that allows commissions as high as 30 per cent. If Rs 30 out of Rs 100 put in by an investor goes into commissions, then to get his Rs. 100 back itself the investor may have to wait for three or four years.”
Many experts felt that if the advertisement was really “educational”, it should have asked ULIP investors to check the amount of commission paid out.
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