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MF News Soon insurance and mutual funds will come with an insurance cover

Soon insurance and mutual funds will come with an insurance cover

The proposed bill to deal with bankruptcies of banks, insurance and AMCs seek to protect consumers of financial products.
Nishant Patnaik Jun 15, 2017

With the Cabinet approving a proposal to introduce a bill to deal with bankruptcies of banks, insurance companies and other financial institutions like AMCs, the government has moved a step ahead to set up a Financial Resolution and Deposit Insurance Bill to deal with any systemic crises.

Simply put, if the Bill enacted, investments in insurance companies and mutual funds will come with an insurance cover just like bank accounts. Currently, under the Deposit Insurance and Credit Guarantee Corporation Act, the government gives Rs.1lakh to depositors if anything goes wrong with the bank. Similarly, Trade Guarantee Fund of stock exchange platform also provides security of shares or invested amount if stockbrokers default.

Similarly, the government is planning to provide a certain amount if anything goes wrong with the insurance companies or mutual funds. The government seeks to protect consumers of financial products and provide some kind of stability in the financial services industry by ensuring preventive measures.

Though experts say such an idea is possible in insurance, implementation of deposit guarantee scheme is practically impossible in mutual funds.

Dhirendra Kumar, CEO, Value Research believes that it could be drafting error. “Mutual funds are pass through vehicles and hence, AMCs do not guarantee any returns. I do not think Resolution Corporation would be applicable in mutual funds. However, it could help investors who bought insurance policies in a big way. Banks and insurance companies guarantee returns on their products and an insurance cover on such products will protect the interests of investors.”

 

 

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