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Tarannum Hasib – Are ULIPs Still Attractive Post Capital Gains Tax?

Vivek Law: Hello and welcome to this very special series Finance Made Simple. Joining me today is Tarannum Hasib who is the Chief Distribution Officer at Canara HSBC OBC Life Insurance. Thanks very much, Tarannum, it's a pleasure talking to you. The capital gains tax which has been introduced on ULIPS - how does that affect the attractiveness of the ULIP? There have been a lot of reforms in this product. There was a time and you would know this since you've been around for a while now that the charges were very high. People felt that they were ridiculously high initially when they came. Over the years, these charges have been brought down but ever since the capital gains tax was introduced on mutual funds which are a competing product, if I may say so, though you may disagree with that. But there was a feeling that ULIPS has now become more attractive because the income that you get is completely tax-free. How does the new tax or bringing it on par with a mutual fund now make a ULIP? Does it make it less attractive now?

Tarannum: So, Vivek you were right when you said that you will not agree that insurance and mutual fund belong to the same category because the category of the investor and the need is completely different. Because one is a short-term perceived product and people of course do invest for long-term in mutual funds. But insurance is very different - it's a long-term product and the goal-based scenario is very different. As far as ULIPS are concerned, I think ULIPS is still very attractive because of the options which the ULIP provides to the investor in multiple categories of funds which it offers. It offers you equity, growth, and balance. So, multiple types of funds available to an investor, and charges are very competitive in the product. Charges, as well as the fund management charges both, are extremely competitive in ULIP products, which give a consumer an option to optimize returns very effectively. Along with that, you of course have a Sum Assured, which is a 10 times multiplier so you get a Sum Assured with it which is not available in any other product. So, it gives you two benefits at one go one is you optimize your returns plus you get a Sum Assured along with it and up to ten times and even more if a customer chooses to. So, that is one very helpful thing. Also, a lot of customers, especially savvy ones like to switch and see how the market moves and do want to lock in their returns and move to a less aggressive fund or a more aggressive fund and also basis your life cycle when you're younger you have an option to go to a growth fund. As your life stage moves on you can go to a less aggressive fund. Now all these switches do not come at a cost in terms of taxation in ULIPs. And most of the insurance companies give a lot of switches free as well. So, this is very attractive especially for a consumer who wants to maximize and optimize his returns. This is not available in any other vehicle of investment. Tax exemption - so why we say this 2.5 lakhs has brought and opened up a tax pandora discussion? But 80C exemption up to one and a half lakhs continues with all insurance products including ULIPs. That stays and also under Section 10 (10D), the exemption has gone away only for people who are investing more than 2.5 lakhs in a year. If you look at insurance companies, I'm not sure how many people pay 2.5 lakhs worth of premium year on year. A large section of the consumers will still benefit from Section 10 (10D) directly. And of course in terms of the demise of the life of the investor, again these overall proceeds on maturity are exempt under Section 10 (10D). I think ULIPS are still very attractive and earlier insurance was a tax-saving vehicle. The awareness is moved on from there and especially in the segment where people want to invest higher sums. They don't invest only in taxation. They invest for multiple other reasons in terms of long-term returns. I think there will be a small segment that may get impacted but I don't see a major impact and ULIPS will continue to be very attractive even going forward.

Vivek: Alright, we leave it there. Thank you very much for joining me and sharing your thoughts and perspective on a very important subject. Thank you once again.

Tarannum: Thank you so much, Vivek. It was a pleasure, thank you.

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