ULIPs will cease to be very attractive for distributors from September 1, 2010 considering the new guidelines. In the past we have seen that whenever one vehicle becomes unattractive to distributors they immediately latch on to another vehicle. We have seen this in the mutual fund space where investments would be churned out of an existing scheme and re-routed to a new fund offer to get the upfront commissions. Later when entry loads were abolished on mutual funds we saw investments shifting to ULIPs.
Now that ULIP commissions have been reduced and lock-in period increased, one could see distributors shifting focus to Structured Products in the form of equity linked debentures. Structured Products are products which do not fall directly within the purview of either RBI or SEBI. The margins to the distributors are also opaque to the investor. In short, all the ingredients for increased volumes are there!