Fidelity may bring products to rival Ulips

One broad range of products Fidelity is considering launching is mutual funds with add-on features of term insurance schemes

As part of its plans to double its business here over the next five years, the India unit of Fidelity International, one of the world’s largest asset managers, is considering launching a fund with features of life insurance term plans, a top official said on Tuesday.

FIL Fund Management Pvt. Ltd, which has around Rs9,375 crore of assets under management (AUM), wants to increase it to $5 billion (Rs24,400 crore), said Robert Higginbotham, president, Fidelity International’s European, Middle East and Indian businesses in an interview. “(The) biggest ingredient (of the expansion strategy) would be the number of products,” he said.

One broad range of products Fidelity is considering launching is mutual funds with add-on features of term insurance schemes. This will be modelled on products known as self-invested personal plans that Fidelity currently sells in Germany and the UK.

In India, these products will compete directly with unit-linked insurance plans, or Ulips, which provide life cover and invest part of the premium in stocks and bonds.In most cases, the sum assured in the policy varies according to the value of the underlying assets.

According to the Life Insurance Council, an umbrella body of insurance firms, the insurance market in India as of March was Rs2.2 trillion (both new business and renewals), while the mutual fund industry is around Rs5.82 trillion, or about 3% of total Indian household savings.

However, mutual fund firms claim that Ulips take away business by taking advantage of technicalities. Life insurance firms do not have a standard method to calculate charges included in Ulips.

Mutual fund companies, however, cannot charge more than 2.5% of AUMs in fees. Also, the capital markets regulator Securities and Exchange Board of India earlier this year scrapped entry fee for mutual funds.

Launching these mutual-fund-plus-insurance products would take some doing, said an expert.

“Right now, it’s impossible,” said Dhirendra Kumar, head of Value Research India Pvt. Ltd, a mutual fund tracker. “There is no entry load now and expenses are capped. You can’t get worthwhile insurance for this amount.”

Source: http://www.livemint.com/2009/07/14215451/Fidelity-may-bring-products-to.html

Transaction platform for Indian funds by end-2009

Indian funds industry will launch a common transaction platform by the end of 2009 in a bid to cut cost and expand reach, an industry official said on Wednesday.
"By the end of the year, it should be up and running," Jaideep Bhattacharya, chief marketing officer of UTI Asset Management and chairman of the industry committee working on the platform, told Reuters in a telephone interview.
He said the committee, with members from firms such as Franklin Templeton, Reliance Capital and Kotak Mutual Fund, had identified four players, one of whom would develop the platform on lines of those available in global funds industries such as Australia, Europe and the U.S.
India's 5.8 trillion rupees funds industry has limited reach, with top-8 cities contributing more than three quarters of its assets, while its profitability is shrinking due to higher cost.
"Our profits are at least six basis points lower than the global average and this is mainly due to the operating cost being higher and we feel this can be bridged by the platform," Bhattacharya said.
The industry's operating cost stands at 33 basis points (bps) compared with 25 bps in the U.S. and 29 bps in Asia. Back office and IT cost are higher as well at nearly 48 bps, compared with 42 bps in the U.S. and 43 bps in Western Europe, he said.
A new regulation that bans entry load charged by mutual funds towards and marketing and distribution costs from August 1 is expected to further hurt profitability and make it tougher for money managers to gather assets and increase reach.
"We need to reduce cost and especially in this new environment," Bhattacharya said, adding he expected the platform to cut transaction cost by half.
While it gives investors quick and easy access to mutual funds, fund houses would be able to reach a wider pool of clients without costly physical presence across Tier II and Tier III cities expected to contribute significantly to growth.
Advisors spent 60 percent of their time in operational work, he said, adding the platform would free them to offer advisory services, vital after Aug. 1, when they would charge fees directly from investors based on the quality of their advice.
"It will empower the investors by giving choices and we are bringing in operational and services efficiencies both for the manufacturers and distributors," Bhattacharya said, adding the platform could be run on a no-profit basis.

Source: http://in.reuters.com/article/domesticNews/idINBOM13832920090715?sp=true