The last couple of years have seen a flurry of regulatory changes affecting the various Indian investment products. These changes are sure to impact all of us. So it is essential for you to understand what these regulatory changes mean for you. Here are some of the major changes impacting various investment products.
Regularization of ULIPs
- Reduction of charges: Before the ULIP charges were capped, the insurers charged exorbitant charges on these products. Hence it took a long time for the recovery of these charges. But now IRDA has put a limit on these charges. This means you can recover your charges more quickly.
- Spreading out of charges over the policy term: Previously these charges were deducted during the initial 3-5 years of the product. As a result, your corpus decreased significantly. But now, the final amount goes up significantly, as more amount is invested initially.
- Hike in lock-in period: The the lock-in period for these products has gone up to 5 years from the earlier 3 years. This is a very important change as equities tend to give better returns over a long period, and most ULIPs are equity-based products. So you tend to get higher returns.
- Guaranteed return on pension scheme: The pension schemes from insurance companies are now set to offer you a guaranteed return of 4.5%.
- Limitation on surrender charges: With this move, you will get higher amount, if you decide to surrender your policy prematurely.
Revised guidelines for PMS
- Minimum investment for PMS to be fixed at 5 lakhs: Previously, PMS managers would accept clients even though they couldn’t invest Rs 5 lakhs. But with this new SEBI circular, the minimum amount for PMS account has been fixed at Rs 5 lakhs.
- PMS Managers to charge fee only on the excess profit generated: SEBI has said that the PMS Manager can charge their fee only on the excess profit generated over the previous year. E.g. if you invest Rs 5 lakhs, which after a year becomes Rs 8 lakhs, then you pay fee only on Rs 3 lakhs and not on the entire corpus. This saves you money in the long run. Moreover this fee will be levied at interval exceeding a quarter. This will safeguard your returns.
Abolishment of entry loads in mutual funds
- This means lesser churning, fewer NFOs and no mis-selling. It means investors gain.