What are life settlement funds and why is HDFC Bank in the spotlight over it?

HDFC Bank is once again in the spotlight after a group of investors, many of them NRIs, alleged the country’s largest private sector lender sold them a high-yielding product, huge investments were made, and later redemptions from the said third-party fund stopped, leaving the investors in the lurch.

According to a report by Mint, a group of 70 investors have come together alleging they were sold life settlement fund run by Carlisle Asset Management, as a unique investment opportunity between 2017-19, with returns promised between 14-16 per cent.

One of the NRI investors from Australia told Mint that the fund stopped redemptions a year into the investment leaving them shocked.

What are life settlement funds?

These are investment products that typically specialise in acquiring existing life insurance policies from policy holders. Many times, people who may have brought life insurance policies may no longer require it. Such investors could surrender their policies, but the value they will get will be significantly lower than the promised maturity or death benefit. Enter, life settlement funds.

These funds purchase such life insurance policies from these policyholders, at a price higher than the policy’s surrender value. Now, the fund will continue to pay the premiums for the remainder of the policy and will also then collect the death benefit when the insured individual passes away. This money that the fund gets under the death benefit is then paid to the investors who had put their money in the fund as returns.

In essence, the life settlement funds act as a secondary market for life insurance policies. As of now, there is no market for such funds in India. But it is available in several, especially developed, markets.

Investors typically see these funds as portfolio diversifiers. Also, there is a probability of high returns, which are also unlikely to be influenced by market or economic conditions like stocks or bonds are. However, life settlement funds are not without their risks.

Such funds are often illiquid, and you may have to hold on to the investment till the death benefits accrue, for you to get your return. Importantly, the insured people may live longer, and that may in turn delay the death benefit, on which the returns are eventually dependent on. Also, in case the underlying insurance company that sold the policy in the first place goes out of business, the death benefit then may not be paid at all.

What did HDFC Bank do?

Coming back to HDFC Bank. The investor has alleged that he was sold one such life stage fund via the bank in the UAE. The Luxembourg Life Fund was run by Carlisle Asset Management.

According to the report, these investors reportedly account for around $12.5 million. The actual amount that the bank raised via this route reportedly could be around $100 million, although those claims are unverified.

What happened to the fund?

Alternate asset manager Abacus Life Inc. acquired Carlisle in 2024. According to a 2025 report by Morpheus Research, which cited Carlisle’s financial statements, Carlisle’s flagship fund, the Luxembourg Life Fund — Long Term Growth Fund, invested in life settlement assets and reported on average 20% returns and up to 31% annual returns for nearly a decade until 2020, when redemptions were suspended after the fund experienced “an increased volume of redemption requests.”

HDFC Bank’s response

The lender says that it had only facilitated the investments and the onus of the fund performance and redemptions was with the fund house. Further, in response to the report, the bank has said that the fund was registered in a recognised jurisdiction and that at the time of investment the fund had a performance track record and had been honouring redemptions. Importantly, HDFC Bank has said it hasn’t found any incidence of mis-selling in this case.

As per the report, HDFC Bank wrote to investors that it has liaised repeatedly over the years with Carlisle, external legal counsel and the financial regulator in Luxembourg and that it is aware of the unsatisfactory nature of the outcome so far.  

This is not the first time that HDFC Bank finds itself in such a situation.

Earlier this year, the bank fired three executives following an internal investigation over alleged mis-selling of high-risk AT1 (Additional Tier-1) bonds of Credit Suisse to NRI clients, primarily through the Dubai branch.

This action was in the backdrop of Dubai Financial Services Authority barring HDFC Bank’s DIFC branch in September 2025 from conducting any business with new customers or soliciting or engaging in any financial promotions with new clients, as it was found to be carrying on financial services for customers not onboarded by the DIFC branch.

Credit Suisse faced liquidity issues and had to be bailed out in 2023 by rival UBS. Under that deal, the AT1 bonds were written off, wiping off money of investors who had purchased them.   

Just days before the action by HDFC Bank in the AT1 bonds case, Atanu Chakraborty, the then part-time chairman had resigned citing differences over ethics and value.