LIC, SBI Life, HDFC Life plunge up to 11% post Budget. Here’s why

Shares of life insurance companies fell up to 11 per cent on Wednesday after the Budget made tweaks to tax exemptions regarding life insurance policies. Sampath Reddy, Chief Investment Officer at Bajaj Allianz Life cited the FM announcement where she said only traditional insurance policies with annual premium of up to Rs 5 lakhs bought from FY24 onwards will be tax-exempt.

Reddy said this is a bit of a dampener to the insurance industry and that it may deter insurance penetration in India and also be a constraint on household financial savings (to some extent), which have already been on a decline in the past few years.

Shares of ICICI Prudential Life Insurance plunged 10.97 per cent to Rs 402.55. HDFC Life Insurance tanked 10.96 per cent to Rs 515.50. Life Insurance Corporation (LIC) fell 8.38 per cent to close at Rs 598.80.  SBI Life Insurance was down 9.31 per cent at 1106.35.

Jimeet Modi, Founder & CEO at SAMCO Group said that what is bad today for insurance industry in the Budget today will be a blessing in disguise for the mutual fund (MF) industry.

A lot of mis-selling was happening in the insurance industry where investors were sold a packaged investment cum insurance product as endowment scheme or some other schemes, where premium outlay for investors in a financial year used to be Rs 5 lakh and above, said Modi.

“ They were actually sold some investment product with some insurance part in it. Now, with the tax advantage of such schemes going away, such products will become less lucrative for investors and therefore, we believe that large part of these money which would have otherwise have been invested in insurance, will now come either to MFs or fixed deposits (FDs) or equities,” he said.

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