Life insurers' income falls for first time in a decade; investor indifference to Ulip the main reason

India's life insurers face the prospect of growth faltering this fiscal - for the first time since the opening up of the industry - as a combination of regulatory restrictions and investor indifference to unit-linked insurance products, or Ulip, hurt sales of what was once the industry's best-selling product.

The slide in Ulip sales and a lack of pension products in the market have had an impact on the industry's total premium income, which has been negative year on year so far this financial year. "For the first time since the sector was opened up, the total (year-on-year) premium is negative," said SB Mathur, secretary general, Life Insurance Council. "Very few Ulip products are selling. People are looking for guarantees," he said, summing up the state of the industry and investors.

The rate of increase in renewal income has dropped from 10% to 4% this year. There has been a fall in the number of policies sold, too. While the industry had sold 4.8 crore (480 million) policies in 2010-11, it has been able to sell only 300 million so far this year.

With just two months to go for the financial year to end, insurers say it is unlikely that they will be able to match previous year's sales figure.

In 2010-11, the average premium on policies rose from about 5,000 to about 15,000. The total premium income was, therefore, positive even though there was a decline in the number of policies sold. The tide started changing for insurance companies from September 2010, as policyholders started opting for conventional policies, such as moneyback and traditional pension policies, due to a change in regulations that rendered Ulips unattractive.

Under the new rules from insurance regulator Irda, policyholders have to stay invested in a Ulip for five years, compared with three years earlier. The bearish sentiment in the stock markets has also hurt Ulips popularity, since they were unable to post decent returns, putting off investors.

Franklin Templeton launches fund that will invest in US firms

Franklin Templeton Investments (India) today launched an open-ended fund which will invest in US-based companies across sectors as part of its international diversification approach.

The new fund offer (NFO), FT India Feeder, will close for subscription on January 31, the private mutual fund house said.

"International diversification is the key ingredient for long-term success of an investment portfolio as the level of asset management have not grown since the last two years due to increased market volatility. This has increased the acceptance of diversification as a key investment tool," Franklin Templeton India President Harshendu Bindal told reporters here.

Indian investors traditionally have had a low exposure to global funds due the relatively better performance of domestic markets, he added.

The NFO will help investors achieve diversification through exposure to high quality US companies that are currently trading at attractive valuations, Bindal said.

The total asset under the master fund (Franklin US Opportunities Fund) is about about USD 2.4 billion.

RBI to hold rates steady next week, CRR cut unlikely: Poll

entral bank will not cut interest rates at its review on Tuesday, although it is nearly unanimously expected to do so by the end of June, a Reuters poll of 22 economists showed.

7 out of 20 respondents expect the Reserve Bank of India to cut banks' cash reserve ratio (CRR), the proportion of deposits that must be held with the RBI, by 25 or 50 basis points from its current 6 per cent on Tuesday.

A CRR cut would ease tight liquidity conditions in the Indian banking system and signal easing intent of the RBI, which remained hawkish far longer than most central banks and raised its policy interest rate as recently as October -- its 13th increase since early 2010.

While none of those polled expect a cut in the RBI's policy repo rate on Tuesday, 8 of 22 foresee a cut by the end of current financial year in March and all but 1 expect the key rate to be cut by the end of June.

"The inflationary potential in the economy remains huge. So the Reserve Bank of India is unlikely to risk an interest rate cut or cash reserve ratio on Jan. 24," said Arun Singh, senior economist at Dun & Bradstreet.

India's headline inflation slowed in December to a two-year low of 7.47 per cent as food price pressure eased dramatically, but manufactured products inflation edged up from November, a sign that core inflation remains sticky.

Factory output grew 5.9 per cent from a year earlier in November, the fastest clip since June, recovering from a contraction in the previous month and well above the forecast 2.2 per cent growth in a Reuters poll.

The cash rate remains entrenched above 9 per cent and banks' borrowings from the central bank's repo counter have averaged 1.22 trillion rupees ($24.1 billion) so far in January, more than double the RBI's comfort zone of 600 billion rupees, a sign that supply is crimped.

That has prompted some in the market to call for a CRR cut, with heavy government borrowing planned for coming weeks.

"A 50 basis point in CRR will not dilute the anti-inflationary stance. And the RBI could look at supplementing the CRR cut with more OMOs," said Abheek Barua, chief economist at HDFC Bank, referring to debt buybacks by the RBI through open market operations.

Barua said that if the RBI cuts CRR, it should do so as a liquidity management step, not a rate measure.

Last week, Subir Gokarn, the deputy governor of the central bank in charge of monetary policy, was quoted by a newspaper as saying that "lowering CRR will be contradictory to the anti-inflationary stance." A week earlier, he said the interest rate cycle in India had peaked.

The RBI has raised its policy rate by a combined 375 basis points since early 2010, lifting its key lending rate, the repo rate, to 8.50 per cent. It has not moved the CRR from its current 6 per cent since April 2010.

Where should NRIs invest their gains from a weak rupee

he rupee was quoting at 44.8001 against the US dollar seven months ago, and has depreciated 18.28% since then. A falling rupee is not the best news for us, but it definitely is for exporters and NRI investors who will receive more rupee funds on conversion. Given the current scenario, NRIs have some good investment options to park their surplus funds.

Short term (6 months to 1 year)

Fixed income mutual funds: A range of fi xed income mutual funds offer customers the combined benefi t of attractive returns with full repatriability, low cost, convenient processing and ease of portfolio tracking. Safe investors should opt for liquid plus funds.

Bond funds/longer-duration gilt funds: They are meant for investors who are comfortable with some price uncertainty. "They can benefit from any potential capital gain arising out of any reduction in future interest rates. Also, any appreciation in the rupee over the investment period would imply additional returns," VISHAL KAPOOR, Head, Wealth Management, Standard Chartered Bank, India.

NRE deposits: "They are clearly the best option after the deregulation by RBI. Short-term deposit rates are attractive due to tight liquidity conditions in money markets while being tax free," SUTAPA BANERJEE, CEO - Private Wealth, Ambit Capital.

Medium term (1-3 years)

Balanced mutual funds/NRE deposits: You can opt for either of these instruments depending on whether the horizon is one or three years, respectively. "The choice depends on the kind of price volatility and whether the investor is seeking a guaranteed return or not," JAYANT PAI, CFP, Vice-President, Parag Parikh Financial Advisory Services.

Fixed maturity plans: They are an attractive option for customers looking to locking in at prevailing high rates. For risky investors, Indian equities may offer signifi cant long-term opportunities. "Investors could participate through selective stocks or through a wide range of equity funds with good track record. The quarter ahead may offer selective buying opportunities for active investors, or one could choose to simply stagger investments through a defi ned period, using systematic transfer from debt to equity funds," says Kapoor.

Long term (3 years or more)

Diversified equity funds (through SIPs): They are good options at the current rates. FDs are not a good option as the uncertainty of foreign exchange movements may not be fully compensated by interest rates. "However, risk averse depositors may chits. Gold ETFs are also a oose long-term NRE deposgood option," says Pai. Investors should allocate their funds using a strategic allocation model tailored to their individual risk profi le. This should normally combine debt, equity as well as alternative assets. Clearly, debt offers a very attractive opportunity in the near term but one should also keep in perspective the attractiveness of Indian equities over the medium to long term.

Realty Check

Real estate as an investment option makes sense if you plan to return to India after some time. However, you should choose a location that is familiar to you and stick to a reputed builder, given that proximity is an issue.

From a pure investment angle too, the same caveat applies: Familiarity and reputation. Also, there is greater chance that projects of reputed builders will appreciate more than others'.

Also, as NRIs are not permitted to purchase plots of land/plantations/farm houses. Even commercial real estate is subject to a plethora of limiting regulations. Purchasing apartments or bungalows maybe the only options available.

It is difficult to give a ballpark estimate regarding returns, as it will depend on the location and various other factors.

However, as an investor you have to be cautious in the near-term since it is an interest rate sensitive sector and demand may be impacted by relatively high interest rates.

"It is imperative to find out whether one is allowed to invest in an instrument by RBI as well as by the country of their residence. For example, several bonds don't have separate clauses which allow for NRIs to invest in them," says Banerjee of Ambit Capital .

Choosing The Right Investment

Liquidity, post-tax returns, price volatility and credit risk are the crucial factors that should determine the choice of the instrument you invest in.

The amount of foreign exchange risk one is willing to undertake is also a crucial factor. Of course, the forex risk is always present in all options other than FCNR deposits.

Convenience and trust need consideration. One may choose those options where he/she can transact online. This enables easier portfolio tracking.

Suitability of the product/asset based on endogenous factors such as age, economic situation, liquidity considerations etc. are the same as those for resident Indians.

Sucheta Dalal :IDFC L&T Infra drop interest rates for tranche2 —IFCI is good bet

Sucheta Dalal :IDFC L&T Infra drop interest rates for tranche2 —IFCI is good bet

SBI tax saving deposits—can it really fetch you 17.77% return? - Moneylife Personal Finance site and magazine

SBI tax saving deposits—can it really fetch you 17.77% return? - Moneylife Personal Finance site and magazine

SBI’s tax saving deposits advertisement claims to give you 17.77% return. While it assumes you are in the 30% tax bracket at the time of investment, it conveniently calculates the return without considering tax obligation on the interest generated at the time of exitDuring the tax savings season, people are desperate to save Rs30,900 in taxes by investing their hard-earned Rs1 lakh in certain kinds of savings instruments. One such avenue is a tax-saving fixed deposit (FD) which is for a five-year term without option for premature withdrawal. SBI has put a front page advertisement in Times of India and other leading national dailies claiming to give 17.77% effective annual yield. It assumes you are in the 30% bracket (which may not be true) and it gives an effective annual yield without considering the tax on the interest generated, which could be up to 30%.While your effective annual yield will vary based on your tax bracket at entry and exit, SBI’s calculations in the advertisement shows the slick marketing which wants to consider highest possible tax savings on entry and no tax liability on exit. It is misleading to an average investor who can get dazzled by the big returns claimed in the advertisement. This kind of advertisement is usually seen with infrastructure bonds giving tax benefit under 80CCF for Rs20,000 investment. Last year, IDFC bond claimed a tax-adjusted yield of up to 17.85% to investors on buyback (after five years for 10-year bond), which was confusing to the average investor. The company was offering 8% return last financial year.On a positive note, SBI’s rate of interest for tax savings five-year FD is 9.25% per annum (p.a.) which is also the same as it offers for regular FD. In the past, tax savings deposit FD used to offer a little lower rate than the regular FD. With tight liquidity for banks, they want to entice deposits with high interest rates. It is important to note that there is no option for premature withdrawal even with penalty for tax savings FD and the interest is taxable. There are other better options for tax savings under 80C. Consider all the options before jumping in with tax savings FD.SBI has been advertising heavily for attracting big deposits. It is giving 8.5% p.a. interest for deposit of Rs1 crore and above for only seven-day FD. This is a good option for high-net-worth individuals, who want good return as well as liquidity.

Lessons from Charlie Munger-X - Views on News from Equitymaster

Lessons from Charlie Munger-X - Views on News from Equitymaster

The Hindu : News / National : NRIs will get right to vote; pension fund for overseas workers

The Hindu : News / National : NRIs will get right to vote; pension fund for overseas workers

NRIs will get right to vote; pension fund for overseas workers

Manmohan wants them to contribute "much more" to building a modern India

Prime Minister Manmohan Singh on Sunday called upon the Indian communities living abroad to play a more active role and contribute “much more” to the building of a modern India and promised significant steps to facilitate, encourage and promote their engagement with the country of their origin.

Inaugurating the 10th Pravasi Bharatiya Divas here, Dr. Singh also announced the right of franchise to the non-resident Indians who are registered under the Representation of the People Act, 1950. A new pension and life insurance fund for overseas Indian workers, to enable them to voluntarily save for their return and resettlement, has also been introduced.

Trinidad and Tobago Prime Minister Kamla Persad-Bissessar is the chief guest at the three-day festival, which began on Saturday. About 1,900 NRIs and Persons of Indian Origin (POIs) are taking part in the flagship event, which will focus on India's success in diverse fields and invited them to strengthen their bonds with their ancestral land.

The formal inauguration of the annual event at B.M. Birla Auditorium here on Sunday, a day after brainstorming seminars were organised on a variety of subjects, was attended by a battery of distinguished persons, industrial magnates, young entrepreneurs and government functionaries.

Among others, Union Minister for Overseas Indian Affairs Vayalar Ravi, acting Rajasthan Governor Shivraj Patil and Chief Minister Ashok Gehlot attended the inaugural session. Union Finance Minister Pranab Mukherjee, Union Road Transport and Highways Minister C.P. Joshi and Lok Sabha MP Shashi Tharoor addressed the subsequent sessions.

Dr. Singh said that while the notifications had been issued to enable Indian residents abroad to participate in the country's election processes, a Bill had been introduced in Parliament to merge and streamline the PIO and Overseas Citizen of India schemes by amending the Citizenship Act. This would provide for an overseas Indian card that would be given to foreign spouses of the holders as well.

The new pension and life insurance scheme, fulfilling a long-pending demand, would enable the overseas Indians to save for their old age after returning to the country, said the Prime Minister. It would also provide a low-cost life insurance cover against natural death.

Listing the steps taken for safety and security of the Indians living abroad, particularly in the regions of instability, Dr. Singh said the government was “acutely conscious” of the security needs of over six million Indians staying in the Gulf and West Asia. “We have conveyed to [these] countries that we have a stake in the peace and stability of this region. We expect that they would appropriately look after the interest of Indian communities.”

He said the Ministry of Overseas Indian Affairs had prepared an action plan to implement the recommendations of an inter-ministerial committee on issues relating to repatriation, relief and rehabilitation of Indian nationals affected by the recent developments in the West Asian region.

IDBI Bank hikes interest rates on NRE deposits to 9.5% p. a.

Mumbai, Maharashtra, December 29, 2011 /India PRwire/ -- IDBI Bank has revised Interest rates on NRE deposits to 9.5% p.a. for deposits with maturity ranging from 1 year 1 day to 10 years. The Interest rates on deposits for maturity period of 1 year will be 9.25% p.a. This rate will be applicable on fresh NRE deposits & renewal of maturing deposits. The interest rates will stand revised from December 28, 2011.
The revised interest rates are as follows -
Maturity Slab Interest Rate [% p.a.]
1 year 9.25 %
1year 1 Day - years 9.50 %
Notes to Editor
About IDBI Bank:
IDBI Bank Ltd. is today one of India's largest commercial Banks. For over 40 years, IDBI Bank has essayed a key nation-building role, first as the apex Development Financial Institution (DFI) (July 1, 1964 to September 30, 2004) in the realm of industry and thereafter as a full-service commercial Bank (October 1, 2004 onwards)