Is a change coming in Budget 2023? Will mutual fund houses be able to handle insurance money?

Proposal for AMCs managing insurance money for Budget 2023

Is a change coming in Budget 2023

As the Union Budget is in the offing, experts and analysts are putting forth their views, recommendations and expectations for the same. The Association of Mutual Funds of India (AMFI) also set expectations for the next budget. The entity recommended allowing Asset Management Companies (AMCs) to handle insurance funds.

In its list of recommendations for the Union Budget 2023, AMFI suggested that the finance ministry allowed mutual fund companies to become service providers. Insurance companies might be allowed to outsource their fund management activities to AMCs, who are already doing the same for mutual funds.

After AMFI announced its proposal, experts backed the recommendation because of its benefits. Have a look –

  • AMCs as fund management vehicles

AMCs are vehicles of fund management that collect investments from multiple investors and then invest the pooled corpus in different securities per the fund's investment objective. Insurance companies do the same, though their investment rules are different. The argument is since AMCs are already managing funds and have professionals to take care of the same, they can handle insurance premiums and invest them in suitable avenues as the rules dictate.

  • Ability to handle domestic and international funds

AMCs have the capability to compartmentalize the different funds that they offer and manage each one independently. International mutual fund houses engage the services of Indian AMCs to manage their Indian investments. Similarly, AMCs offer feeder funds that invest in international funds.

So, AMCs have the required skill set and expertise to manage domestic and international funds. They can lend their services to insurance companies that also appoint external fund managers to manage their investments.

  • Options for policyholders 

With multiple AMCs functioning in the market, policyholders can choose the AMC they want to handle their money. This would boost policyholders’ confidence. Moreover, with different types of funds offered by AMCs, policyholders can invest in different funds and even switch without incurring taxes.

Moreover, if the proposal is accepted, insurance companies can cut down on fund management activities and outsource them to entities specialising in the field. It would also cut down on the duplicity of efforts.

Experts also suggest that the proposal can be tested with ULIPs. If insurers fear brand dilution, they can choose the AMCs of their affiliated brands. Most insurers are tied-up with other financial conglomerates, and if they outsource fund management to those AMCs, they can avoid brand dilution.

Related - Here are some key highlights of the Union Budget 2022

While the idea is new, what the budget proposes remains to be seen. It might herald a new era for the insurance and mutual fund industry if accepted.

Related - Know the different types of charges associated with mutual funds

Check out the video to know the challenges and expectations from Union Budget 2023

As the Union Budget is in the offing, experts and analysts are putting forth their views, recommendations and expectations for the same. The Association of Mutual Funds of India (AMFI) also set expectations for the next budget. The entity recommended allowing Asset Management Companies (AMCs) to handle insurance funds.

In its list of recommendations for the Union Budget 2023, AMFI suggested that the finance ministry allowed mutual fund companies to become service providers. Insurance companies might be allowed to outsource their fund management activities to AMCs, who are already doing the same for mutual funds.

After AMFI announced its proposal, experts backed the recommendation because of its benefits. Have a look –

  • AMCs as fund management vehicles

AMCs are vehicles of fund management that collect investments from multiple investors and then invest the pooled corpus in different securities per the fund's investment objective. Insurance companies do the same, though their investment rules are different. The argument is since AMCs are already managing funds and have professionals to take care of the same, they can handle insurance premiums and invest them in suitable avenues as the rules dictate.

  • Ability to handle domestic and international funds

AMCs have the capability to compartmentalize the different funds that they offer and manage each one independently. International mutual fund houses engage the services of Indian AMCs to manage their Indian investments. Similarly, AMCs offer feeder funds that invest in international funds.

So, AMCs have the required skill set and expertise to manage domestic and international funds. They can lend their services to insurance companies that also appoint external fund managers to manage their investments.

  • Options for policyholders 

With multiple AMCs functioning in the market, policyholders can choose the AMC they want to handle their money. This would boost policyholders’ confidence. Moreover, with different types of funds offered by AMCs, policyholders can invest in different funds and even switch without incurring taxes.

Moreover, if the proposal is accepted, insurance companies can cut down on fund management activities and outsource them to entities specialising in the field. It would also cut down on the duplicity of efforts.

Experts also suggest that the proposal can be tested with ULIPs. If insurers fear brand dilution, they can choose the AMCs of their affiliated brands. Most insurers are tied-up with other financial conglomerates, and if they outsource fund management to those AMCs, they can avoid brand dilution.

Related - Here are some key highlights of the Union Budget 2022

While the idea is new, what the budget proposes remains to be seen. It might herald a new era for the insurance and mutual fund industry if accepted.

Related - Know the different types of charges associated with mutual funds

Check out the video to know the challenges and expectations from Union Budget 2023

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