IRDA Going the SEBI way?

When SEBI announced allowing direct applicants too apply for mfs without any load or cut, it was seen to be a revolutionary step much resented by agents and fund houses alike. Though a rare few do direct purchases the trend will take some time to catch on.

What most people wondered then was about why IRDA, an agency meant to regulate the insurance industry did not take similar steps to protect small investors, from the ulip and insurance swindles  involving misselling of ulip products by agents as safe bets with fancy market based returns assumptions, having a lockin of only 3 yrs.  The commissions and loads mfs paid out, was minuscule say 2.5% max in comparison to some first premium commissions especially in case of ulips (including or excluding other costs  and charges) that were between 40% and even to 75% in one instance if i remember right.

Thankfully Livemint reports

“Irda recommended in July that following the amendment of the Insurance Act, the regulator must get the power to make it mandatory for life insurance companies not to charge agent’s commission to a customer who buys a policy directly,” said the Irda official, who did not want to be named.

“There is a clear case that customers who apply directly to buy a policy should not be charged the same way as others who come through agents. Lowering the charges for direct customers will also ensure a healthy relationship between the customers and their insurance companies,” said R. Kannan, member (actuary), Irda. “The matter is before Parliament at the moment.”

Investments in Ulips involve several charges such as an initial administration charge or premium allocation charge, a regular administration charge, a policy administration fee and an investment management charge. Collectively these charges may eat up to 70% of the premium paid in the first year, including up to 40% of the premium as agent’s commission.

Hope it is implemented soon, as it will benefit the insurance companies the most , as most intelligent investors will start taking insurance seriously (sorry as things stand insurance is still an investment and tax savings vehicle).

Ipo Season Q2 2009

The current IPO season started with a few Ipos including Mahindra holidays and two talked about power listings NHPC and Adani power.

ADANI POWER BSE: 533096  |  NSE: ADANIPOWER

IPO ISSUE PRICE 100 1St Day close 100.10 Today  100.85

NHPC BSEId :533096    NSE Id :ADANIPOWER

IPO ISSUE PRICE 36 1St Day/ Today close 36.70

Both have barely given ANY returns to their investors as they were fully priced, thus most small and leveraged investors must be a disappointed  lot. Another Raj oil mills has been hammered well below listing price(27%).

The lead managers Enam have justified/defended the pricing by asking investors to take a long term view, that too in an edgy flippers market, when past experience has been mixed to negative.

It is common knowledge that both the management and managers to some issues use different tactics  from making/using unknown front companies to bit in the qib segment, to cultivating HNIs and renting demat accounts to offering grey market premiums to retail investors etc to make sure that the issue is oversubscribed .

What i have noticed in these ipos is that though the QIBs demand  is very high even on the first day(even after SEBIs new rules), the HNIs and the Retail subscription Eg NHPC  comes in very late.  Thank God, over subscription has become much more sane, especially in the retail category as most investors have seen through the game / not forgotten that they have made at least 50% losses on various ipos like Edelweiss , Reliance Power, Kolte Patil, Brigade etc.

NHPC IPO Oversubscription

Qualified institutional buyers (QIBs)  subscribed 29.16 times.
Non institutional investor category, was subscribed 56.70 times.
Retail investor category was subscribed 3.87 times.

I am still unsure as to why even after such high oversubscription 29/56  times why a solid psu script lacked demand  and languishes at almost ipo levels on day one .

All in all things will be very interesting as the Oil India IPO has been announced at Rs. 950 to Rs. 1,050 per share, that too when a fully valued secondary market (NSE 4700) is waiting to correct.