Insurance Regulatory and Development Authority of India (IRDAI) may make it mandatory for insurers to invest minimum 25% of the unit-linked investment fund into Central Government Securities (G-SEC). This move can impact the returns generated by ULIPs to the insurers and policyholders.
“Equity tends to deliver the highest returns across asset classes. Mandating a minimum exposure to government securities will run contradictory to this research-backed view, compromising customer choices” said RM Vishakha, Managing Director and Chief Executive of IndiaFirst Life Insurance.
Kshitij Jain, MD and CEO of Exide Life Insurance, said, “The proposal will also whittle down choices available to policyholders. This draft reduces the flexibility offered to customers.”
A government security is a bond or other type of debt obligation that is issued by a government with a promise of repayment upon the security’s maturity date. Government securities are usually considered low-risk investments because they are backed by the taxing power of a government. Unit-linked plans offer combination of equity, balanced and debt funds, wherein investor has a choice to invest in high, medium or low risk equity, as per his/her risk appetite. By making it mandatory to invest minimum 25% of unit-linked funds in Government securities, fund managers of insurance companies will have little room
