SEBI issued show cause notices to ULIP issuing insurance companies as to why they did not take SEBI registration before issuance and why action not be taken against them under SEBI Act.
Order says that
- ULIPs different from traditional insurance products as they are combination of insurance and investment
- Like MFs as exit at NAV (unutilized fund value)
- Investors subject to investment risks of security markets entirely borne by investors
- By their own admission, issuers have stated that 2 components, insurance and investment
- "Trust" structure requirement for registering a MF with SEBI, but it does not mean SEBI can't regulate because there is no "trust" structure.
- Example of a scheme where just 2% of premium was going towards insurance costs.
- Pooling of investments, investor expectation of profit, management on behalf of investors and investor not having day to day control, render ULIPs as CIS and MFs
- ULIPs not purely "contract of insurance" as exempted under SEBI Act
- ULIPs also not exempted as not being CIS as per the SEBI Act
- Regarding non-transferability of ULIPs comparison made with Open ended MF schemes where issuance and redemption is with MF only. Physical issuance not there in many MF cases as they issue just statement of A/c
- Registration with IRDA does not mean that issuers are exempted from other laws and regulations
Link to SEBI order
MF- Mutual Fund
SEBI - Securities & Exchange Board of India
CIS - Collective Investment Scheme
ULIP - Unit Linked Insurance Plan
IRDA - Insurance Regulatory Development Authority (of India)
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