Other than Government of India savings products, which carry nil investment risk, in all other cases there are risks attached and they need to be disclosed. However, such disclosures should ideally be uniform and not uneven across product categories governed by different regulators. Look at the insurance, especially life insurance, where the risk factor is disposed off in one line: "Insurance is the subject matter of solicitation." Thankfully, so far, no insurance company has failed to meet its commitments, but it is still early days. The liberalised insurance industry has been around for less than 10 years. It is important to note that the solvency margin is applicable on the "insurance" portion of ULIPs and not on the "investment" part and the latter constitutes the much larger portion.
Bank deposits do not even have this line. How many depositors are aware that bank deposits of only up to Rs 1 lakh (principal plus interest) is covered under deposit insurance? The poor depositor gets to know of this beast called 'deposit insurance' only in the unfortunate event of a bank failure, as has happened in the recent past with some co-operative and private sector banks. But, in the case of MP products, the risk factors cover nearly 40% of any product advertisement. However, the lay person does not get the essence of the same. In spite of the best efforts of the regulator as well as the industry, it has so far been a question of form over content. Unfortunately, this is also true of other capital market products such as shares and the like.
Bank deposits do not even have this line. How many depositors are aware that bank deposits of only up to Rs 1 lakh (principal plus interest) is covered under deposit insurance? The poor depositor gets to know of this beast called 'deposit insurance' only in the unfortunate event of a bank failure, as has happened in the recent past with some co-operative and private sector banks. But, in the case of MP products, the risk factors cover nearly 40% of any product advertisement. However, the lay person does not get the essence of the same. In spite of the best efforts of the regulator as well as the industry, it has so far been a question of form over content. Unfortunately, this is also true of other capital market products such as shares and the like.
No comments:
Post a Comment