IRDA's ULIP salvo

What's been proposed
The lock-in period for all unit-linked products (ULIPs) has been increased from three years to five years. All limited premium ULIPs, other than single premium products, will have premium-paying term of at least five years. Further, all ULIP pension or annuity products will offer a minimum guaranteed return of 4.5 per cent per annum or as specified by the Insurance Regulatory and Development Authority (IRDA) from time to time. All ULIPs will follow the new guidelines from September 1, 2010.

What triggered the move
IRDA wants to clearly establish that ULIPs are insurance schemes and not investment products. Since ULIPs park a bulk of their corpus in equity markets, a vast majority of investors has seen them as a proxy for mutual funds. The latest move, IRDA hopes, will settle the debate once and for all.

Implications for investors
Analysts concur that ULIPs have been repositioned as a long-term product, and have become a good tool for providing for your golden years (with a promise of minimum guaranteed returns). The new formula will protect your lifetime savings, to a great extent, from any adverse market fluctuations.