New Delhi: Life Insurance Corporation's (LIC) entry into group unit-linked business is likely to bring down management charges for retirement funds.
The corporation has fixed lower charges for fund management, administrative charges and other charges for its new unit-linked gratuity plan, reports Economic Times.
LIC said that it would charge a mere 0.8 per cent as fund management charge for equity schemes and Rs 10 administrative charge per employee.
Some insurers charge twice as much as what is charged by LIC. The corporation also said that its gratuity fund would not have any entry or exit loads.
Moreover, since the group plans are sold directly, it does not incur expenses towards commission.
As a result, even in the first year, as much as 97 per cent of employers' contribution gets allocated into the fund. LIC's entry into the group unit-linked business is likely to bring down industry charges for managing these funds.
Launching the corporation's first unit-linked group insurance plan — Gratuity Plus, LIC chairman, TS Vijayan said that the corporation has regained market share in group insurance business with a 53 per cent growth in the first two-and-a-half months of this fiscal.
The corporation's share of group insurance premium has increased from 77.78 per cent as on March 06 to 81.97 per cent a month later.
The corporation's group insurance portfolio has touched Rs 45,000 crore with close to Rs 15,000 crore in gratuity funds. Employers who have already parked gratuity funds with LIC will have an option to shift to the unit-linked gratuity scheme.
Until now LIC offered only traditional schemes to employers to manage retirement benefit schemes for employers.
The traditional schemes invested primarily in debt and generated guaranteed returns ranging from six per cent to 8.5 per cent. As per the law, an employer has to set aside money for his liability to employees towards gratuity payment.
Some companies outsource management of gratuity to LIC. The corporation manages gratuity fund of over Rs 15,000 crore. Nilesh Sathe, chief, Pension and Group Insurance said that the charges fixed by LIC for Gratuity Plus were the lowest in the industry.
According to Vijayan, the corporation is not looking at making any large profits from the group business. He said that he expected corporates to set aside provisions for gratuity in the equity scheme because of the long-term potential of equity.
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