The Hindu Business Line : Aviva India Bond

Some of the insurance companies are planning to raise their new premium income through debt products such as endowment and money back. Aviva Life Insurance has recently launched the Aviva India Bond — a single premium endowment plan.

Here’s a look at the salient features:

Premium amount: The minimum single premium is Rs 50,000.There is no upper limit.

Policy term: Choice of a five-year or a ten-year period.

Risk cover: Five times the single premium for the first year; for the second and third year, it is four and three times respectively. Thereafter, it will be twice the premium until maturity.

Benefit on maturity : On maturity, the policyholder is eligible for compounded return of 7 per cent per annum. The maturity proceeds are exempt from tax.

Tax benefit: Premium paid towards the policy is eligible for tax benefit under Section 80C.

The issue closes on October 6.

In an interaction with Business Line, Mr Anil Sahgal, Director, Strategy and CIO, Aviva India, answers queries on the product.

What is your investment strategy for this fund?

This is a traditional product and we will be investing in debt instruments such as government securities, infrastructure bonds, corporate bonds and in the money markets.

We would be looking at AAA and AA+ bonds.

Why is there no surrender value in the first year?

Aviva India Bond is a traditional plan and cannot be surrendered in the first year. In case a policy-holder decides to surrender the product in the second year, the surrender value would be 90 per cent of the single premium paid.

What are the charges applicable on this bond?

Charges applicable are:

Mortality charges;

Fund management charges; and

Administration charges.

Is there any specific reason for the reduction in risk cover over the years?

Reduction in risk cover reduces the cost of mortality and helps us to deliver better returns to our customers.

Why should one buy this bond when PPF fetches 8 per cent return and also gives the facility of partial withdrawal?

FD and PPF do have their own place in a financial portfolio.

At the same time, there are a few factors to be kept in mind while selecting such options. The interest earned in case of FD is taxable; PPF has an upper cap of Rs 70,000 per individual per year. Besides, the rate of return is also subject to revision.

However, if you invest in an Insurance Bond, it can meet both these concerns — your maturity benefits will be tax-free and there is no upper limit for investment.

Further, it comes with the benefit of a life cover. Your investments too are as safe as in any sovereign investment.

Why is the fund open for a limited period only? Do you foresee any changes in interest rates or are you likely to have a cap on collection?

We have initially launched the fund for a period of 15 days. We will evaluate the interest rate after 15 days and then take further decisions on the product.

We do not see a drastic change in interest rates. The same has fallen a percentage point and, hence, we are cautious in our outlook.

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