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Wednesday, October 31, 2007

Labour Laws

Credits to the author. It can be viewed in
This PLUS (Labour Primer) can make you the master of Labour Laws.

Enjoy referring...

Stamp Duty, QIP,

Ready Referencer Series... Credit to the Authors...
1. Stamp Duty Chart
2. QIP... from Chartered Secretary

Enjoy referring...

The Payment of Bonus (Amendment) ordinance, 2007

Credits to Mr. Dattari, CS Mysore

On 27th October, 2007 the President has promulgated the Payment of Bonus (Amendment) ordinance, 2007 containing the following amendments:-i) Amendment to clause (13) of Section 2 of the Payment of Bonus Act, 1965 to raise the eligibility limit for payment of bonus from the salary or wage of Rs. 3500/- per month to Rs. 10000/- per month.ii) Amendment to section 12 of the Payment of Bonus Act, 1965 to raise the ceiling for calculation purpose from the salary or wage of Rs. 2500/- per month to Rs. 3500/- per month;iii) Deletion of clause (vi) of section 32 of the Payment of Bonus Act, 1965 so as to cover the employees employed through contractors on building operations.Thus the employees, including those employed through contractors on building operations will be entitled to receive bonus as per the revised ceilings, for the year 2006-07 and onwards.
The Ordinance shall be deemed to have come into force on 1st April, 2006.
For further details, kindly refer

Tuesday, October 30, 2007

The Online Companies Act

V will always make things more & more easier.

Access Companies Act (& also many more files too - soon) just by the click of your mouse from here,

Enjoy referring...

RBI - Mid term review of Annual Policy - Hike in CRR to 7.5%

The RBI Governor, YV Reddy announced the credit policy in Mumbai today.
RBI has hiked the CRR by 50 bps to to 7.5% from 5%. However, the other key rates including the repo and reverse repo rates have remained unchanged. CRR hike may impact in the Indian Capital market.
The RBI's has raised the cash reserve ratio given the persistent rise in capital flows, but has otherwise left other policy rates unchanged. The central bank's main message is that the economy is in fine shape – agriculture is above trend, industry and services may slacken just a bit. So the GDP target remains at 8.5% and inflation at 5%

But the main threat is from global capital flows, which may only increase given easing by global central banks. Inflation, which has been successfully controlled so far, is also under threat from oil and food tightness. But the biggest threat is from capital flows, especially from unregulated private entities who invest in equities and real estate. These, with a lag, can increase aggregate demand and impact inflation.

The central bank's thrust therefore is to control and sterilise flows. Hence the hike in CRR.

Is it more hawkish? It is certainly more alarmist.
The bank rate remains unchanged at 6% while the RBI has kept its inflation target for FY08 at 5%. RBI's GDP forecast too remains unchanged at 8.5%.

The RBI has said that the surplus liquidity needs priority attention. It needs to check bank credit risk from faulty derivative record, it added. Oil companies can hedge forex exposure up to 50% of inventory, it added.

The central bank said that money supply is expanding well above 17-17.5%. There is evidence of stability in real estate prices, it revealed. However, it informed that there are irregularities seen in banks' real-estate exposure.

The RBI has said that 10 banks have high exposure to real estate and stocks, adding that it will continue to manage liquidity through reins like CRR, MSS and LAF (liquidity adjustment facility). RBI said that credit growth is in line with 24-25% target. It confirmed that the credit policy stance has been more hawkish than July; the emphasis being on capital flows.
The Reserve Bank said that that authorised dealers have been allowed to run cross currency options. The total credit growth of 23.3% as on October12 stood at Rs 3.81 lakhs crore, it informed. Managing liquidity arising from forex flows posed a key challenge, it said. The Consumer Price Index (CPI) inflation has been up at 7.3% in August 2007 Vs 6.3% (YoY). The deposit growth is ahead of FY08 target of Rs 4.9 lakhs, the central bank informed.

Companies with forex need can write covered call and puts, the RBI said, adding that excess money supply needs 'intensified monitoring.' It has concerns on strong growth in lending to real estate. Asset prices remain at elevated levels, RBI feels. It finds that currency markets have seen a tentative return to stability.

The global economy is still strong and inflation environment is benign, the RBI has observed. The high oil prices are a concern and food and metal prices will feed inflation, the RBI senses.

Press Release: 2007-2008/589 can be accessed from

-- Alagar
Asst Manager - Merchant BankingKarvy Investor Services Limited G-1 Swathi Court22, Vijayaraghava RoadT.Nagar, Chennai - 600 017Tel: 044-28151034/3445/3658 Moble: 919884731993e-mail: alagar.muthu@karvy.comwebsite:

Updates on RBi Circular & investment by NRI, FII & PIO

Dear All,
Updates on RBI circular and FEMA;
1. Guidelines for issuing preference shares as part of regulatory capital by the banks

All of you may be aware of that the RBI vide its circular no. DBOD.No.BP.BC.57/21.01.002/2005-06 dated January 25, 2006 enhanced banks' capital raising options for capital adequacy purposes. With a view to providing a wider choice of instruments to Indian banks for raising Tier I and Upper Tier II capital.

Further vide DBOD.No. BP. BC. 42 /21.01.002/2007-2008 dated 29th October 2007, it has been decided to allow the banks to issue the following types of preference shares in Indian Rupees, subject to extant legal provisions as per guidelines herewith enclosed.

i) Tier I capital

Perpetual Non-Cumulative Preference Shares (PNCPS)

ii) Upper Tier II capital

a) Perpetual Cumulative Preference Shares (PCPS)
b) Redeemable Non-Cumulative Preference Shares (RNCPS)
c) Redeemable Cumulative Preference Shares (RCPS)

2. The Perpetual Non-Cumulative Preference Shares will be treated on par with equity, and hence, the coupon payable on these instruments will be treated as dividend (an appropriation of Profit & Loss Account). All other types of preference shares mentioned above will be treated as liabilities and the coupon payable thereon will be treated as interest (charged to Profit and Loss Account).

3. The addition of above instruments is expected to significantly enhance the range of eligible instruments available to the banks for capital adequacy purposes. Hence, it is not considered necessary to allow the banks to issue preference shares in foreign currency in overseas markets at this stage.

2. Investment in Indian Companies by FIIs/NRIs/PIOs


As per Foreign Exchange Management (Transfer Or Issue Of Security By A Person Resident Outside India) Regulations, 2000 amended till date,foreign Institutional Investors (FIIs), Non-Resident Indians (NRIs), and Persons of Indian Origin (PIOs) are allowed to invest in the primary and secondary capital markets in India through the portfolio investment scheme (PIS). Under this scheme, FIIs/NRIs can acquire shares/debentures of Indian companies through the stock exchanges in India.

The ceiling for overall investment for FIIs is 24 per cent of the paid up capital of the Indian company and 10 per centfor NRIs/PIOs. The limit is 20 per cent of the paid up capital in the case of public sector banks, including the State Bank of India.

The ceiling of 24 per cent for FII investment can be raised up to sectoral cap/statutory ceiling, subject to the approval of the board and the general body of the company passing a special resolution to that effect. And the ceiling of 10 per cent for NRIs/PIOs can be raised to 24 per cent subject to the approval of the general body of the company passing a resolution to that effect.

The ceiling for FIIs is independent of the ceiling of 10/24 per cent for NRIs/PIOs.

The equity shares and convertible debentures of the companies within the prescribed ceilings are available for purchase under PIS subject to:

- the total purchase of all NRIs/PIOs both, on repatriation and non-repatriation basis, being within an overall ceiling limit of (a) 24 per cent of the company's total paid up equity capital and (b) 24 per cent of the total paid up value of each series of convertible debenture; and

- the investment made on repatriation basis by any single NRI/PIO in the equity shares and convertible debentures not exceeding five per cent of the paid up equity capital of the company or five per cent of the total paid up value of each series of convertible debentures issued by the company.

Monitoring Foreign Investments

The Reserve Bank of India monitors the ceilings on FII/NRI/PIO investments in Indian companies on a daily basis. For effective monitoring of foreign investment ceiling limits, the Reserve Bank has fixed cut-off points that are two percentage points lower than the actual ceilings. The cut-off point, for instance, is fixed at 8 per cent for companies in which NRIs/ PIOs can invest up to 10 per cent of the company's paid up capital. The cut-off limit for companies with 24 per cent ceiling is 22 per cent and for companies with 30 per cent ceiling, is 28 per cent and so on. Similarly, the cut-off limit for public sector banks (including State Bank of India) is 18 per cent.

Once the aggregate net purchases of equity shares of the company by FIIs/NRIs/PIOs reach the cut-off point, which is 2% below the overall limit, the Reserve Bank cautions all designated bank branches so as not to purchase any more equity shares of the respective company on behalf of FIIs/NRIs/PIOs without prior approval of the Reserve Bank. The link offices are then required to intimate the Reserve Bank about the total number and value of equity shares/convertible debentures of the company they propose to buy on behalf of FIIs/NRIs/PIOs. On receipt of such proposals, the Reserve Bank gives clearances on a first-come-first served basis till such investments in companies reach 10 / 24 / 30 / 40/ 49 per cent limit or the sectoral caps/statutory ceilings as applicable. On reaching the aggregate ceiling limit, the Reserve Bank advises all designated bank branches to stop purchases on behalf of their FIIs/NRIs/PIOs clients. The Reserve Bank also informs the general public about the `caution' and the `stop purchase' in these companies through a press release.

The current list of companies allowed to attract investments from FIIs/NRIs/PIOs with their respective ceilings you can find in below link:

Thanks & Regards

Friday, October 26, 2007

Securities and Exchange Board of India (Certification of Associated Persons in the Securities Markets), Regulations, 2007

NOTIFICATION NO. F. NO. 11/LC/GN/2007/ 4567, DATED 17-10-2007
In exercise of the powers conferred by Section 30 read with Sections 11, 12 and 19 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following regulations, namely :—
Short title and commencement
1. (1) These regulations may be called the Securities and Exchange Board of India (Certification of Associated Persons in the Securities Markets) Regulations, 2007.
(2) They shall come into force on the date of their publication in the Official Gazette.
2. (1) In these regulations, unless the context otherwise requires :—
(a) (a) “Act” means the Securities and Exchange Board of India Act, 1992 (15 of 1992);
(b) (b) “agent” means any person who is engaged in the activity of sale or distribution of securities on behalf of an issuer or a distributor for a commission or any other consideration;
“associated person” means a principal or employee of intermediary or an agent or distributor or other natural person engaged in the securities business and includes an employee of a foreign institutional investor or a foreign venture capital investor working in India;
(d) (d) “Board” means the Securities and Exchange Board of India established under section 3 of the Act;
(e) (e) “certificate” means the certificate granted by NISM in accordance with these regulations;
(f) (f) “Continuing Professional Education” (CPE) means any course, programme, training programme, activity, conference, seminar that has been accredited or approved by NISM to enhance the knowledge, skills and professional competency of associated persons in the areas of securities, governance and ethics;
(g) (g) “distributor” means any person engaged by an intermediary or an issuer for the purpose of sale or distribution of securities;
(h) “intermediary” means an entity registered under sections 11 or 12 of the Act and includes any person required to obtain any membership or approval from a stock exchange or a self-regulatory organization;
(i) “issuer” means a company or a mutual fund or a collective investment scheme which has issued or proposes to issue securities to the public in accordance with the relevant regulations or guidelines made by the Board and also includes a venture capital fund registered under the relevant regulations or guidelines made by the Board;
(j) “NISM” means the National Institute of Securities Markets established by the Board;
(k) “principal” means persons who are actively engaged in the management of the intermediary’ s securities business including supervision, solicitation, conduct of business, and includes:
(1) (1) Sole Proprietors
(2) (2) Managing Partners’ and
(3) (3) Whole Time Directors
(1) “securities” means securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).
(2) Words and expressions used and not defined in these regulations shall have the meanings, if any, respectively assigned to them by or under the Act or the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Companies Act, 1956 (1 of 1956) or the Depositories Act, 1996 (22 of 1996) or rules and regulations made thereunder or any amendment thereto or re-enactment thereof.
Obligation to obtain certificate
3. (1) The Board may by notification in the Official Gazette require such categories of associated persons to obtain requisite certificate for engagement or employment with such classes of intermediaries and from such date as may be specified in the notification:
Provided that an associated person employed or engaged by an intermediary prior to the date specified by the Board may continue to be employed or engaged by the intermediary if he obtains the certificate within two years from the said date.
(2) (2) An associated person on being employed or engaged by an intermediary on or after the date specified by the Board shall obtain the certificate within one year from the date of being employed or engaged by the intermediary.
(3) (3) An associated person who, as on the date specified by the Board, holds a certificate for a category as recognized by the Board shall not be required to obtain a fresh certificate for the same category during the validity of such certificate.
(4) (4) The Board for the purpose of issuing notification under sub-regulations (1) and (2) shall take into consideration :
(a) (a) whether the associated person as part of his work or operation deals or interacts with the investors, issuers or clients of intermediaries;
(b) (b) whether the associated person deals with assets or funds of investor or clients;
(c) (c) whether the associated person handles redressal of investor grievances;
(d) (d) whether the associated person is responsible for internal control or risk management;
(e) (e) whether the associated person is responsible for compliance of any rules or regulations;
(f) (f) whether the associated person is engaged in activities that have a bearing on operational risk of the intermediary.
Manner of obtaining certificate
4. (1) Subject to the provisions of this regulation, an associated person may obtain the certificate in any of the following manners, namely:—
(a) (a) by passing a certification examination conducted by any organization or self regulatory organization approved or engaged as may be specified by NISM from time-to-time; or
(b) (b) by obtaining such number of classroom credits accumulated through attending classes on such subjects as may be specified by NISM from time-to-time; or
(c) (c) by delivering such number of formal classroom sessions in all or specific programmes of continuing professional education as may be specified by NISM from time-to-time.
(2) (2) An associated person being principal shall obtain the certificate in any of the manners specified in clause (a) or clause (b) or clause (c) of sub-regulation (1).
(3) (3) An associated person, other than a principal, who has attained the age of fifty years or who has at least ten years experience in the securities markets in the activities mentioned in sub-regulation (4) of regulation 3 on the date specified in the notification issued under sub-regulation (1) of regulation 3, shall obtain the certificate in the relevant category in the manner specified in clause (a) or clause (b) of sub-regulation (1).
(4) (4) An associated person other than those mentioned in sub-regulation (2) or sub-regulation (3) shall obtain the certificate in the manner specified in clause (a) of sub-regulation (1).
Validity period of certificate
5. (1) The certificate granted under regulation 3 shall be valid for a period of three years from the date of the grant of the certificate or revalidation thereof as the case may be.
(2) Upon expiry of the validity of certificate possessed by an associated person, the certificate shall be revalidated for a period of three years at a time, provided the associated person successfully completes a programme of continuing professional education specified by NISM in accordance with Chapter IV of these regulations.
Associated person not to undertake certain activities without a valid certificate
6. No associated person engaged in any of the activities mentioned in clauses (a) to (f) of sub-regulation (4) of regulation 3 shall continue to be so engaged after the date specified in sub regulation (1) or sub-regulation (2) of regulation 3, as the case may be, unless such associated person holds a valid certificate.
Powers and functions of NISM
7. (1) NISM would perform the functions delegated to it under these regulations or as may be delegated by the Board.
(2) (2) Without prejudice to the generality of the foregoing provisions and the activities of NISM .under its articles, the functions of NISM in respect of certification for associated persons in the securities market shall include putting in place and implementing the certification process, procedure and policies.
(3) (3) NISM in consultation with the Board may lay down standards which may-
(a) specify that all or any portion of such standards shall be applicable to all or any category of associated persons working or associated with all or any class of intermediaries in securities market;
(b) specify that no associated person in any such class may be qualified to be employed or engaged or continued to be employed or engaged by an intermediary unless he is in compliance with such standards of examination, continuing professional education requirements and such other qualifications as NISM in consultation with the Board may specify.
Conduct of certification examination and programmes of continuing professional education
8. For conducting certification examination and programme of continuing professional education, NISM may:
(1) (1) accredit, approve or engage any organization or self regulatory; organisation to administer certification examinations.
(2) (2) accredit, approve or engage any organization or self regulatory organization to conduct all or any programme of continuing professional education as may be specified from time to time.
(3) require all associated persons appearing for certification examinations or undergoing programme of continuing professional education to pay reasonable fees or charges to defray the costs incurred in conducting such certification examinations and programmes of continuing’ professional education.
Continuing Professional Education requirements for associated persons
9. (1) NISM may specify the requirements’ for continuing professional education (CPE) for associated persons holding certificate and approve the programmes of CPE that may be conducted by entities accredited and engaged in accordance with regulation 8.
(2) (2) No intermediary shall permit any associated person to continue and no associated person shall continue to perform duties as an associated person unless such person has complied with the requirements specified by NISM under sub-regulation (1) within 3 years from the date of obtaining the certificate or revalidation thereof.
(3) (3) The requirements of sub-regulations (1) and (2) shall apply to associated persons who are engaged in any of the activities mentioned in clauses (a) to (f) of sub-regulation (4) of regulation 3.
Intermediary to ensure participation in •continuing professional education
10. (1) Each intermediary shall be responsible to ensure that its associated persons participate in a programme of continuing professional education approved by NISM under sub-regulation (1) of regulation 9.
(2) Associated persons shall take all appropriate and reasonable steps to participate in a programme of continuing professional education as requited by the intermediary.
Certification of associated persons to be pre-condition for registration of intermediaries11. Compliance with the provisions of these regulations shall be one of the factors to be taken into consideration by the Board for the purpose of determining eligibility criteria for grant or renewal of certificate of registration to an intermediary under the relevant regulations.

Proprietary/Spcl/Cost Audit for SMSA - The 50th Post






Covers all aspects of safeguarding of assets, use of business funds and recording of transactions;

Conducted by CA appointed by Central Government to protect the interest of stakeholders;

Review of examination & appraisal of cost accounting records;


Ensure business funds are protected in the public interest;

Ensure effective & timely steps of control & mgmt;

Critical review of cost statements & recommends;


Proper use of fixed assets & its safeguard, prevents misuse of funds & checks transaction recording;

Statutory audit PLUS prescriptions of Central Government;

Reviews cost accounting system; variation analysis ensuring efficacy;


Covers area of financial accounting but it tests economy, efficiency & faithfulness;

Compliance of sound business principles or prudent commercial practices & prevents from serious injury or insolvency;

Correctness of cost of production and audit of cost accounting records;


Cash & other subsidiary books; Records & registers as mandated by Sec. 227 & CARO;

Cash & other subsidiary books and such other areas prescribed by Central Government (CG);

Raw material, WIP, Allocation & Distribution of direct & indirect cost & overheads;


Chartered Accountant or member/director under CAG;

Chartered Accountant as appointed or authorised by CG;

Member of ICWAI holding Certificate of Practice appointed by Board with previous approval of CG;


Alongwith Statutory Audit though not mandated under Companies Act;

Only when CG directs & such direction will give the periodicity of audit;

Compulsory for every Financial Year as specified by Government;


To Management & members in certain cases;

To the Central Government;

TO CG with a copy to company and may cause to be published;

Trezrrr every pulsss

Thursday, October 25, 2007

SEBI Board Meeting on P Notes Issue


PR No.286/2007

SEBI Board Meeting

The SEBI Board today discussed the various issues relating to registration of FIIs viz issuance of P-Note/ODIs by some FIIs/Sub-accounts, the linkages (or absence thereof) between quantum of P-Notes/ODIs issued v/s the capital flows into the Indian markets.

The Board also discussed the nature of measures that need to be implemented immediately vis-à-vis the long term direction of the policy aspects relating to participation of foreign entities in the Indian Securities Market. It was felt that in the long term, SEBI may consider introduction of a regime of KYC/AML/CFT certification on foreign entities seeking to invest in the Indian markets, as is currently applicable on domestic entities, compliance with which will enable such entity to invest directly.

Having regard to the need to contain the export of the Indian capital markets, the Board felt that in the long term the approach should be to enable access to Indian markets by quality investors, by introducing a range of innovative products, including OTC derivatives, as are available in other markets, at competitive costs.

The Board discussed the policy measures on Offshore Derivative Instruments (Participatory Notes) hosted by SEBI on its website on October 16, 2007. Having considered the comments and suggestions in response to the proposals, the Board has taken the following decisions:

1. It was proposed that "FIIs and their sub-accounts shall not issue/renew ODIs with underlying as derivatives with immediate effect. They are required to wind up the current position over 18 months, during which period SEBI will review the position from time to time."

It is has already been clarified by SEBI that there is no proposed bar on ODI contracts, expiring this month or in the following months, being renewed, provided the renewal does not go beyond 18 months. It was further made clear that this proposal did not in any manner seek to restrict renewal or rollover of Indian Exchange Traded Derivative Contracts by the FIIs.

FIIs/sub-accounts are free to invest in derivatives traded on recognized stock exchanges.

The Board decided that starting from the date of implementation of this proposal, they can not issue P-Notes that are based on such derivatives.

2. It was proposed that "further issuance of ODIs by the sub-accounts of FIIs will be discontinued with immediate effect. They will be required to wind up the current position over 18 months, during which period SEBI will review the position from time to time."

The Board decided that from the date of implementation of the proposal, no sub-account can issue fresh ODIs. Existing ODI issuing sub-accounts have to ensure that they wind up all their ODIs within 18 months of implementation of the proposal.

SEBI had received several requests from existing P-Note issuing sub-accounts on the above proposal. Taking note of the transition being made by the sub-accounts currently issuing participatory notes, into FIIs, and in order to ensure implementation of the proposals in a non-disruptive manner, the Board has decided that that these applicants be treated as if they were FIIs as on the date decided for calculation of the AUC for the above proposals.

3. It was proposed that "The FIIs who are currently issuing ODIs with notional value of PNs outstanding (excluding derivatives) as a percentage of their AUC in India of less than 40% shall be allowed to issue further ODIs only at the incremental rate of 5% of their AUC in India. "

The Board confirmed the proposal with the understanding that 5% incremental issuance allowed to such FIIs would be applicable on an annual basis, till such time that the percentage reaches 40%, after which the entity will abide by the proposal applicable to entities above the 40% limit.

4. It was proposed that "Those FIIs with notional value of PNs outstanding (excluding derivatives) as a percentage of their AUC in India of more than 40% shall issue PNs only against cancellation / redemption / closing out of the existing PNs of at least equivalent amount." The Board confirmed the proposal.

5. The Board discussed several possible dates for implementation of the above proposals. Taking into account the fact that reporting of P-Notes/ODIs by FIIs is on a monthly basis and the last available data with SEBI was in respect of September 2007, the Board decided that the effective date for calculation of the AUC for the purpose of determining the notional value of PNs issued as a percentage of AUC, for the above proposals shall be September 30, 2007. The proposal will however take effect after close of trading hours on October 25, 2007.

In view of the submissions of some PN-holders that they would like to register with SEBI directly, instead of participating through the P-Note route but are are unable to adhere to the eligibility criteria prescribed under the FII Regulations, the SEBI board has agreed to the following changes to the registration criteria

1. Broad-based criteria

The "broad-based" criteria shall now be modified to include entities having at least 20 investors, no single investor holding more than 49% (instead of 10% at present).

2. Track record of the applicant

Track record of individual fund managers will be considered for the purpose of ascertaining the track record of a newly set up fund, subject to such fund manager providing its disciplinary track record details.

3. Issuance of ODIs/PNs would be limited to only "regulated" entities and not "registered" entities.

4. FII and sub-account registrations will be perpetual, subject to payment of fees.

5. The Board further discussed the issue of registration of Pension Funds, Foundations, Endowments, University Funds and Charitable trusts or societies, which are not regulated with any regulatory authority and having regard to the nature of these entities, advised that these entities may be registered as FIIs without imposing the requirement of their being "regulated".


October 25, 2007

Thanks & Regards

IRDA FAQ on Insurance Product - to know more

Dear All,

IRDA has come out FAQ for Insurance product, whoever investing in Insurance product, this might be uesfull to know more information about insurance product. The same is reproduced below for your perusal.

Unit Linked Insurance Products ( ULIPs)
Unit Linked Insurance Polices (ULIPS)
Frequently Asked Questions (FAQs)
Unit linked guidelines were notified by IRDA on 21st December 2005. The main intent of the guidelines was to ensure that they lead to greater transparency and understanding of these products among the insured, especially since the investment risk is borne by the policyholder. It is the endeavor of IRDA to enable the buyer to make the most informed decision possible when planning for financial security. We hope the following FAQs will enable a better insight to all buyers about the character and features of Unit linked Products.
1. What is a ULIP?
ULIP is an abbreviation for Unit Linked Insurance Policy. A ULIP is a life insurance policy which provides a combination of risk cover and investment. The dynamics of the capital market have a direct bearing on the performance of the ULIPs. REMEMBER THAT IN A UNIT LINKED POLICY, THE INVESTMENT RISK IS GENERALLY BORNE BY THE INVESTOR.
2. What is a Unit Fund?
The allocated (invested) portions of the premiums after deducting for all the charges and premium for risk cover under all policies in a particular fund as chosen by the policy holders are pooled together to form a Unit fund.
3. What is a Unit?
It is a component of the Fund in a Unit Linked Policy.
4. What Types of Funds do ULIP Offer?
Most insurers offer a wide range of funds to suit one's investment objectives, risk profile and time horizons. Different funds have different risk profiles. The potential for returns also varies from fund to fund.
The following are some of the common types of funds available along with an indication of their risk characteristics.
General Description
Nature of Investments
Risk Category
Equity Funds
Primarily invested in company stocks with the general aim of capital appreciation
Medium to High
Income, Fixed Interest and Bond Funds
Invested in corporate bonds, government securities and other fixed income instruments
Cash Funds
Sometimes known as Money Market Funds — invested in cash, bank deposits and money market instruments
Balanced Funds
Combining equity investment with fixed interest instruments
5. Are Investment Returns Guaranteed in a ULIP?
Investment returns from ULIP may not be guaranteed." In unit linked products/policies, the investment risk in investment portfolio is borne by the policy holder". Depending upon the performance of the unit linked fund(s) chosen; the policy holder may achieve gains or losses on his/her investments. It should also be noted that the past returns of a fund are not necessarily indicative of the future performance of the fund.
6. What are the Charges, fees and deductions in a ULIP?
ULIPs offered by different insurers have varying charge structures. Broadly, the different types of fees and charges are given below. However it may be noted that insurers have the right to revise fees and charges over a period of time .
6.1 Premium Allocation Charge
This is a percentage of the premium appropriated towards charges before allocating the units under the policy. This charge normally includes initial and renewal expenses apart from commission expenses.
6.2 Mortality Charges
These are charges to provide for the cost of insurance coverage under the plan. Mortality charges depend on number of factors such as age, amount of coverage, state of health etc
6.3 Fund Management Fees
These are fees levied for management of the fund(s) and are deducted before arriving at the Net Asset Value (NAV) .
6.4 Policy/ Administration Charges
These are the fees for administration of the plan and levied by cancellation of units. This could be flat throughout the policy term or vary at a pre-determined rate.
6.5 Surrender Charges
A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions.
6.6 Fund Switching Charge
Generally a limited number of fund switches may be allowed each year without charge, with subsequent switches, subject to a charge.
6.7 Service Tax Deductions
Before allotment of the units the applicable service tax is deducted from the risk portion of the premium.
Investors may note, that the portion of the premium after deducting for all charges and premium for risk cover is utilized for purchasing units
7.What should one verify before signing the proposal?
One has to verify the approved sales brochure for
• all the charges deductible under the policy
• payment on premature surrender
• features and benefits
• limitations and exclusions
• lapsation and its consequences
• other disclosures
• Illustration projecting benefits payable in two scenarios of 6% and 10% returns as prescribed by the life insurance council.
8. How much of the premium is used to purchase units?
The full amount of premium paid is not allocated to purchase units. Insurers allot units on the portion of the premium remaining after providing for various charges, fees and deductions. However the quantum of premium used to purchase units varies from product to product.
The total monetary value of the units allocated is invariably less than the amount of premium paid because the charges are first deducted from the premium collected and the remaining amount is used for allocating units.
9. Can one seek refund of premiums if not satisfied with the policy, after purchasing it?
The policyholder can seek refund of premiums if he disagrees with the terms and conditions of the policy, within 15 days of receipt of the policy document (Free Look period ). The policyholder shall be refunded the fund value including charges levied through cancellation of units subject to deduction of expenses towards medical examination, stamp duty and proportionate risk premium for the period of cover.
10. What is Net Asset Value (NAV)?
NAV is the value of each unit of the fund on a given day. The NAV of each fund is displayed on the website of the respective insurers.
11. What is the benefit payable in the event of risk occurring during the term of the policy?
The Sum Assured and/or value of the fund units is normally payable to the beneficiaries in the event of risk to the life assured during the term as per the policy conditions.
12. What is the benefit payable on the maturity of the policy?
The value of the fund units with bonuses, if any is payable on maturity of the policy.
13. Is it possible to invest additional contribution above the regular premium?
Yes, one can invest additional contribution over and above the regular premiums as per their choice subject to the feature being available in the product. This facility is known as "TOP UP" facility.
14. Whether one can switch the investment fund after taking a ULIP policy?
Yes. "SWITCH" option provides for shifting the investments in a policy from one fund to another provided the feature is available in the product. While a specified number of switches are generally effected free of cost, a fee is charged for switches made beyond the specified number.
15. Can a partial encashment/withdrawal be made?
Yes, Products may have the "Partial Withdrawal" option which facilitates withdrawal of a portion of the investment in the policy. This is done through cancellation of a part of units.
16. What happens if payment of premiums is discontinued?
a) Discontinuance within three years of commencement – If all the premiums have not been paid for at least three consecutive years from inception, the insurance cover shall cease immediately. Insurers may give an opportunity for revival within the period allowed; if the policy is not revived within that period, surrender value shall be paid at the end of third policy anniversary or at the end of the period allowed for revival, whichever is later.
b) Discontinuance after three years of commencement -- At the end of the period allowed for revival, the contract shall be terminated by paying the surrender value. The insurer may offer to continue the insurance cover, if so opted for by the policy holder, levying appropriate charges until the fund value is not less than one full year's premium. When the fund value reaches an amount equivalent to one full year's premium, the contract shall be terminated by paying the fund value.
17. What information related to investments is provided by the Insurer to the policyholder?
The Insurers are obliged to send an annual report, covering the fund performance during previous financial year in relation to the economic scenario, market developments etc. which should include fund performance analysis, investment portfolio of the fund, investment strategies and risk control measures adopted.
In case, you need any clarification, you may address your query to the following e-mail id:

Thanks & Regards
Asst Manager - Merchant Banking
Karvy Investor Services Limited
G-1 Swathi Court
22, Vijayaraghava Road
T.Nagar, Chennai - 600 017
Tel: 044-28151034/3445/3658
Moble: 919884731993

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