Insurers selling mutual funds positive for both; can increase compliance burden

Experts say consumers have a need for both life insurance as well as MFs in their portfolios.

MFs are designed to meet customers’ short-term financial goals (a few months to less than five years) whereas life insurance products are designed to be vehicles for mid-to-long-range financial goals (10-30 years), said Asit Rath, Chief Executive officer and Managing Director of Aviva India.

“A good financial planner would not just help customers plan for short to long-range goals, but also protect the family’s overall savings from sudden shocks by offering health and protection solutions. We believe opening up the distribution of related financial instruments to life insurance distributors will go a long way in increasing penetration as well as financial inclusion in the country,” he said.

Also read | Is your mutual fund justified for the expenses it charges you?

The availability of mutual funds through insurance companies will expand customers' investment options, enabling diversification and potential portfolio growth.

Today, investors have to go to multiple entities/people for meeting different financial requirements. They also have to check whether they (the distributors) are certified by the Securities and Exchange Board of India and IRDAI or not.

The insurance regulator’s move will act as a one-stop solution to their needs.

“If you look at it from the overall financial planning perspective, this will help investors get access to a holistic solution to all their long-term, medium-term and short-term financial requirement needs as also return expectations (guaranteed and non-guaranteed),” said RM Vishakha, MD and CEO, IndiaFirst Life Insurance.

Also read | TCS rules on foreign tours, magazine subscriptions, iTunes, international equities… all doubts clarified

Sanjiv Bajaj, Joint Chairman and MD, Bajaj Capital, says customers will benefit from the convenience of accessing both insurance and investment products from a single provider, simplifying their financial management.

Mutual benefit

To be sure, insurance companies launching mutual fund-like products and asset management companies (AMCs) offering insurance policies is not unusual.

Even now, insurance companies are allowed to launch schemes that make investments in portfolios like a regular mutual fund.

For example, Bajaj Allianz Life recently launched India’s first small-cap fund in the Unit-Linked Insurance Plan (ULIP) segment.

On the other hand, mutual funds such as Nippon India, ICICI Prudential, and Aditya Birla Sun Life in the past offered the add-on benefit of life insurance covers when an individual invests through the Systematic Investment Plan (SIP) route.

Last year, SEBI directed fund houses to discontinue bundling SIPs with insurance cover.

Jimmy Patel, MD and CEO, Quantum Asset Management Company, believes IRDAI’s plan will be beneficial for the mutual fund industry.

“It is always positive to have more people distributing financial products. Even at the economy level, it will help,” he said.

Also read | Get paid only if you perform: SEBI’s plan throws MF industry into a tizzy

Bajaj, meanwhile, believes that insurance companies will need to adapt their offerings and expand their product portfolios to include mutual funds alongside traditional insurance products.

Early days

Some experts believe that it is premature to comment on what kind of structure and benefits the regulator and the government have in mind.

“Even today, banks and brokers do sign agreements with mutual fund companies and other financial service providers to sell their products. They are getting remunerated, the benefits do not flow to the insurance companies. The advantage is that the insurance agent will be a one-stop shop for all financial products, but many have already taken this route. So only time will tell how this proposal will unfold," the chief executive at a private insurance company said on condition of anonymity.

Industry insiders also believe more clarifications are needed as to how the mechanism will work for the maintenance of records, overlapping of customers, data confidentiality and investor consent on cross-selling.

“We will have to see how IRDAI relaxes the regulations and also how SEBI views it,” said a chief executive at an AMC.

“Today, you need two entities to sell insurance and mutual fund products. The target audience, agent and distributor remain the same, but many times, because of regulatory issues, the intermediaries don’t sell products. The ease of accessibility and simplicity has to be built in,” the person said.

Also read | Five Sebi proposals may make mutual funds cheaper and more transparent

Overall, insurers offering mutual fund products is set to boost financial inclusion, but there are some concerns.

“The network of insurance distributors across the country is vast and deep. Their clients will have access to multiple products, including mutual funds. This is the biggest advantage. Of course, on the downside, oversight by multiple regulators could lead to confusion in some cases, though mechanisms to deal with such issues can be put in place," said Abhishek Bondia, Managing Director and Co-Founder of SecureNow Insurance Brokers.