Securities & Exchange Board of India (SEBI) and the Insurance Regulatory & Development Authority (IRDA) have initiated dialogues to come up with an agreeable regulation regarding the star product of India's Life Insurance industry- Unit-linked insurance plans (Ulips).

SeEBI spokesman announced that SEBI had agreed to explore various ways to resolve the matter. SEBI Chairman CB Bhave had an hour long meeting with the IRDA Chairman J Hari Narayanan.

The trigger for the meeting was the show cause notices issued by Sebi to life insurance companies for selling ULIPs without an explicit prior approval from SEBI.

IRDA maintains that the unit-linked plans were approved by them under the Insurance Act. SEBI's contention is that ULIPs if sold under collective investment schemes should come under their purview.

The final decision will have significant impact on the Insurance Industry as the ULIPs are a substantial portion of new policies sold in the industry

As the stock market has been showing signs of weakness. Should this be a worry to investors in equity unit-linked insurance plans (Ulip)? The product is best for generating wealth over periods not less than 10 years. There is also enough evidence to show that equity out performs other assets over the long term and can give annualized returns of 15-20 per cent.

The volatility that equity markets are experiencing now is not unusual for this asset market. For Ulips, which target consistent long-term performance, the time horizon of the investment portfolio plays a significant role. Since the portfolio is managed with a long-term perspective, the hindrance of short-term swings in the market is countered to a great extent.

The current market scenario is leaving a great impact and has changed many things in our lives. During the last bear market, the impact of market weakness was limited to stock market and hence the worst affected were those who took a bet on stocks. In the current edition of market weakness, the number of affected by equity are many more, thanks to the popularity of unit-linked plans.

ULIPs are not a pure insurance product, but combine the features of both Insurance and Investments. It is this flavor of investments that makes this product volatile and susceptible to market changes.
As a policy holder one can choose between the various ULIP plans that an Insurance company has and these typically vary according to the percentage split between debt & equity or the kind of sectors that the fund manager would typically invest in.

Given that the equity markets have a certain level of inherent uncertainty, it is obvious that many policy holders would want to re-think their fund selections - based on how the market has performed and what the projections look like.