In this connection, UTI has already forwarded the revised offer document,prepared with a view to making the provisions of ULIP conform to the Sebi(Mutual Funds) Regulations, to the Securities and Exchange Board of India(SEBI).

According to highly placed UTI sources, clearance for the new scheme isexpected shortly which would enable UTI to make it effective from July 1this year. The new scheme would, however, not effect any changes in thebroad existing features of the scheme like target amount, entry age,duration, life and accident covers and tax rebate under Section 88.

Sources said the UTI had decided to revise the existing ULIP scheme tominimise its tax burden in the form of income distribution tax, pegged ataround Rs 70 crore, which it would have had to bear if the scheme was aclose-ended one.

With the scheme getting transferred to an NAV base, UTI will not have todeclare income generated under the scheme which will, instead, get reflectedin net asset value.

Thus far, ULIP has been declaring an income distribution which wasautomatically re-invested in the scheme. However, in the Finance Bill, 1999while the income of investors was made tax-free, an income distribution taxof 11 per cent was levied on the scheme which would have imposed a taxburden on ULIP for any income distribution done during the 1998-99 fiscal.Sources said keeping this in mind a decision was taken that instead ofdeclaring dividend, which in any case is not paid in cash, the repurchaseand sale price of the ULIP units should be suitably increased without,however, causing any loss to the ULIP holders.

In view of this, the revised offer document clearly demonstrates that thesystem of relecting the income through higher repurchase and sale price isreturn neutral in the short term and may be more beneficial to theunitholders over a period of time. "In other words, the new system wouldhelp ULIP holders receive increased tax efficient returns on theirinvestment in ULIP," said a highly placed UTI official.

At this juncture, it may also be mentioned that with the Finance Bill, 2000increasing the rate of income distribution tax together with surcharge to 22per cent and at the same time reducing the long term capital gains tax at aflat rate of 10 per cent(plus surcharge) on redemption of units, the systemof reflecting income through repurchase/sale price has become moreattractive and tax efficient.