Good times ahead for Insurance buyers

Insurance buyers are likely to have good times ahead in the near future. If the Government approves the game changing recommendations put forward by the Committee headed by D.Swarup, Chairman of Pension Fund Regulatory and Development Authority (PFRDA), commission earned by agents by selling conventional and market linked products will take a serious hit. The committee has also recommended setting up of a Financial Well-Being Board (FINWEB) that will come up with common minimum standards for Financial Advisors and promote financial literacy among the general public. The commissions paid to Agents is likely to be cut to no more than 15% immediately. This is likely to fall to 7% in 2010 and become nil by April 2011. The interim period is to be used by the Insurers to develop agents to a more organised way of advising rather than selling products.

The complete details of the consultation paper could be had from the following link

http://pfrda.org.in/writereaddata/linkimages/Consultation%20Paper4825056190.pdf

Our Views : The series of regulatory measures taken by SEBI and IRDA has already evoked a knee-jerk reaction from Distributors of these financial instruments. Hence, this move if enacted would definitely rub salt on the wounds. Having said that, distributors' angst would remain a short term phenomenon and agents who had been enabling transactions for their customers and acting as a transaction point would find the situation difficult to survive. This will clean up the Financial Services Industry of all the weeds. The Industry would become more professional with a minimum set of standards to effectively practice the fee based advisory model. A welcome move that will help Advisors, End Customers and Principals in the long run and remove misselling of products.

DIVIDEND ANNOUNCEMENT IN SELECT MIDCAP FUND

Sundaram BNP Paribas has announced 10% dividend in Select Midcap Fund. Record date would be 4th of Sep 2009.

To know more about the fund, click the link
http://docs.google.com/fileview?id=0B_hV0etqp34rZGFkODI3M2ItZDE3OS00ODc1LWJmMjUtOWVjMDI2N2JiOWY1&hl=en

Children's Insurance Plan Comparison

Here is a simple benefit comparison of three plans from Insurance companies LIC, HDFC and Bajaj. The link is self explanatory.
Click on the link to view the details...

http://spreadsheets.google.com/ccc?key=0AvhV0etqp34rdDg0anphUXhQNTY1eTdRTFFJWF8zY1E&hl=en

DIVIDEND ANNOUNCEMENT - RELIANCE MUTUAL FUND

Reliance Mutual Fund announces dividend in the following funds

1. Reliance Regular Savings Fund (Equity option) - 50% record date is 24th of July 09
2. Reliance Equity Opportunities Fund - 20% record date is 24th of July 09
3. Reliance Regular Savings Fund (Balanced Option) - 30% record date is 24th of July 09

For more details visit

DIVIDEND ANNOUNCEMENT - SBI MUTUAL FUND

SBI Mutual Fund announces dividend in Magnum Sector Funds Umbrella Contra Fund. The record date is likely to be 17th of July 2009. Proposed dividend is 50% subject to availability of distributable surplus.

It is worth mentioning here that, Contra is one of the consistent performers in the Industry.

No Entry Load on Mutual Funds from 1st of August 2009

From 1st of August, Investors have the benefit of no entry load on their mutual fund investments. This is a welcome move from the point of view of investors. In the short term, this may not have a huge response from the investors as penetration of MF investments in the market is very low at this point in time (approximately 6%). In the long run, this might add its value to investors. For the distributors, this is going to affect their revenue generating pattern. For example by getting a 50 lakhs investments, a distributor was pocketing 1 lakh (or even more) for which he/she cannot do justice by providing any value addition. More over, this 1 lakh goes from the investor's pocket. But that was inevitable at that point in time. Now, the investor has the option of negotiating this commission amount and ensure that he gets paid for the level of service provided. How the fund houses generate business without paying distributors is a big question mark.

Following is the text of the sebi circular....



June 30, 2009

Sub: Mutual Funds- Empowering investors through transparency in payment of
commission and load structure

1. SEBI has been taking various steps to empower the investors in mutual funds by
way of more transparency in the loads borne by the investor so that the investor
can take informed investment decisions. Towards this end, SEBI had earlier
abolished initial issue expenses and mutual fund schemes were allowed to
recover expenses connected with sales and distribution through entry load only.
Further, investors making direct applications to the mutual funds were exempted
from entry load.

2. In terms of existing arrangement, though the investor pays for the services
rendered by the mutual fund distributors, distributors are remunerated by Asset
Management Companies (AMCs) from loads deducted from the invested
amounts or the redemption proceeds. SEBI (Mutual Funds) Regulations, 1996
also permit AMCs to charge the scheme (under the annual recurring expense) for
marketing and selling expenses including distributor’s commission.

3. Further, all loads including Contingent Deferred Sales Charge (CDSC) for the
scheme are maintained in a separate account and this amount is used by the
AMCs to pay commissions to the distributors and to take care of other marketing
and selling expenses. It has been left to the AMCs to credit any surplus in this
account to the scheme, whenever felt appropriate. In order to incentivise long
term investors it is considered necessary that exit loads/CDSCs which are
beyond reasonable levels are credited to the scheme immediately.

4. In order to empower the investors in deciding the commission paid to distributors
in accordance with the level of service received, to bring about more
transparency in payment of commissions and to incentivise long term investment,
it has been decided that:
a) There shall be no entry load for all mutual fund schemes.
b) The scheme application forms shall carry a suitable disclosure to the effect that
the upfront commission to distributors will be paid by the investor directly to the
distributor, based on his assessment of various factors including the service
rendered by the distributor.
c) Of the exit load or CDSC charged to the investor, a maximum of 1% of the
redemption proceeds shall be maintained in a separate account which can be
used by the AMC to pay commissions to the distributor and to take care of other
marketing and selling expenses. Any balance shall be credited to the scheme
immediately.
d) The distributors should disclose all the commissions (in the form of trail
commission or any other mode) payable to them for the different competing
schemes of various mutual funds from amongst which the scheme is being
recommended to the investor.
Applicability

5. This circular shall be applicable for
a. Investments in mutual fund schemes (including additional purchases and
switch-in to a scheme from other schemes) with effect from August 1,
2009 ;
b. Redemptions from mutual fund schemes (including switch-out from other
schemes) with effect from August 1, 2009 ;
c. New mutual fund schemes launched on and after August 1, 2009; and
d. Systematic Investment Plans (SIP) registered on or after August 1, 2009.

6. AMCs shall follow the provisions pertaining in clause 5(2)(b) of SEBI Circular
SEBI/IMD/CIR No. 5/126096/08 dated May 23, 2008 regarding updation of
Scheme Information Document (SID) and Key Information Memorandum (KIM) in
this respect.

7. The AMCs shall bring the contents of this circular to the notice of their distributors
immediately and monitor compliance.

8. This circular is issued in exercise of powers conferred under Section 11 (1) of the
Securities and Exchange Board of India Act, 1992, read with the provisions of
Regulation 77 of SEBI (Mutual Funds) Regulations, 1996, to protect the interests
of investors in securities and to promote the development of, and to regulate the
securities market.

FUND COMPARISON

Here is a comparison of a select set of funds, large cap oriented. Some of the consistent performers. The comparison is as on 08th of July 2008. The funds include, DSPML Top 100, HDFC Top200, Sundaram Select Focus, Reliance Vision, Birla Top100

http://spreadsheets.google.com/pub?key=plxMZsoeADBQPJqaJlIcPJQ&output=html&gid=0&single=true