Demonetization brings investment spike in insurance and mutual funds

Both insurance and mutual funds have seen increases of over 30% over the past few months

Demonetization brings investment spike in insurance and mutual funds

Insurance News

By Gabriel Olano

With Indian Prime Minister Narendra Modi’s demonetization of high-value rupee notes last year causing a cash shortage, investment in insurance and mutual funds has seen a marked increase, while cash transactions in other assets such as real estate and gold declined.
Mutual fund investments increased by 37%, while insurance premium payments went up by 31% during the period between April 2016 and February 2017 according to data from financial regulators. Notable increases have been recorded in the months following the demonetization announcement in November.
According to the Insurance Regulatory and Development Authority of India (IRDAI), investment in insurance policies grew by 113% in November, 18% in December and 27.8% in January. However, premium collections fell by 4.5% in January.

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“Premiums collected by life insurance companies more than doubled in November,” said a report by the Reserve Bank of India. “Premiums collected by Life Insurance Corporation of India (LIC) increased by more than 140% in November 2016 as compared with less than 50% by private sector life insurance companies.”
The Prime Minister’s sudden scrapping of old INR500 and INR1,000 notes led to citizens rushing to banks to deposit their notes, worth INR15.44 billion (US$238.2 million) or 86% of the currency in circulation.

The government said that the move was part of a crackdown on the use of cash to fund corruption, terrorism, and other illegal activities.

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