Budget brings insurance on collision course with mutual funds

02 March 2005

As per the new proposal, some of the investment avenues that would qualify for 80C exemptions are:
(a) life insurance premium
(b) deferred annuity plan
(c) contribution to public provident fund
(d) provident fund contributions
(e) approved superannuation fund
(f) subscription to securities approved by the central government
(g) subscription to savings schemes notified by the central government
(h) mutual fund units and,
(i) contributions to pension fund.

Now the fight for the entire taxable surplus is going to be fierce. Downplaying the impact, Venkatesh Mysore, managing director, MetLife India Life Insurance Company P Ltd says, "The budget proposal widens the base and enables people to do significantly more elaborate life insurance and pension planning."

Adds Gaurang Shah, managing director, Kotak Mahindra Old Mutual Life Insurance Company Limited, "The artificially administered interest rates on certain government instruments, as well as maturity and tenure mismatches may lead to disadvantaging life insurance premiums as long-term savings instruments."

The proposed tax provision has put the life insurance companies on a different plane now. Says an official of AMP Sanmar Life Insurance Company Limited offers an interesting scenario, "The budget proposal has taken away the tax benefit element for life insurance and brings in the risk cover element into sharp focus."

Agreeing with him is Sam Ghosh, CEO, Bajaj Allianz Life Insurance Company Limited and country manager Allianz, who says that life insurers will have to redraw their marketing strategies after April 1, 2005.

Speaking about the impact on sales of different schemes Ghosh says that sales of traditional policies may go up. It should be noted that the investment risk is borne by the policyholder in the case of unit-linked policies whereas the insurer bears the risk in policies like endowment.

With all investments put on par for taxexemptions, the fight between the mutual fund industry and the life insurers selling unit-linked policies is expected to become more severe.