India's Insurance Regulatory and Development Authority (IRDA) has dismissed an attempt by the Securities and Exchange Board of India (Sebi) to have a say in how unit-linked investment policies (Ulips) are regulated.

In a one-sentence announcement from chairman J Hari Narayan on Saturday (April 10), IRDA says: "Policyholders of [Ulips] offered by different insurance companies are assured that these policies are safe and secure and the matters arising out of the recent orders of [Sebi] will be addressed expeditiously in the appropriate forum in accordance with law."

Translation: the insurance industry and its policyholders can ignore Sebi's recent declarations that it has jurisdiction over certain Ulips because they are investment products.

This marks the next step in an ongoing battle between the two regulators over the spoils of a limited pool of household assets going to financial products. As detailed in AsianInvestor magazine's March edition, Sebi is trying to create a distribution model based on paying for advice, by banning up-front commissions paid by mutual-fund companies to distributors.

This has led to a sharp curtailment of fund sales, as distributors simply pump out more Ulips, where upfront commissions are capped but not banned. Sebi reacted on February 1 by sending letters to 14 insurance companies demanding that they seek its permission before launching investment-linked policies.

In that letter, Sebi said insurers must stop renewing insurance policies with investment components and threatened the forced premature surrender of insurance policies, causing losses to policyholders, if insurers didn't comply.

Until now, IRDA had remained officially silent; according to one insurance executive in Mumbai, it had suggested insurers refrain from selling policies that most resembled mutual funds.

Although expected, IRDA's new announcement makes clear that insurance companies have no need to heed orders by Sebi regarding Ulip sales.

This is bad news for the mutual-funds industry, which has seen sales of equity funds plummet since Sebi initiated reforms in July. Sales of equity funds, which stood at $916 million for the month of July, plummeted to outflows in August, a trend that culminated in net outflows of $473 million in December.

January enjoyed a turnaround, but the numbers have since returned to the red. The Association of Mutual Funds of India says that in March, equity funds suffered a net outflow of $454.7 million. The figure year-to-date is barely positive, at $134 million, but this is equivalent to only about 50% of funds raised during the first quarter of 2009, at the height of the global financial crisis.