Mutual fund trade body Association of Mutual Funds in India (Amfi) has sent a letter to the finance ministry seeking parity on taxation between units of equity mutual funds and units of unit linked insurance plans (Ulips), offered by insurers. Recent changes in the long term capital gains tax (LTCG) on equities and equity mutual funds have given Ulips a tax edge.
NS Venkatesh, chief executive of Amfi said, “We have sent a letter to finance ministry to bring parity among Ulips and mutual funds at the time of redemption. It is because Ulips are being sold as an investment product and not as a protection product.”
Finance minister Arun Jaitley, in his budget speech, had proposed to levy 10% LTCG tax on units of equity mutual funds but the units of Ulips were not brought under the ambit. As such, Ulips continue to enjoy tax benefits under section 10(10D), which allow gains in these schemes to be exempted from tax.
Senior officials in the mutual fund industry said that the tax arbitrage window is a great opportunity for insurance companies to push Ulips, and this will increase more mis-selling. “We are just saying that if Ulips are sold as an investment product, then they should have a similar tax structure as mutual funds and they should not be given tax exemption,” said an official in a fund.
In order to attract retail investors, life insurance companies have started offering low cost Ulips that can compete with equity mutual funds. Recently, Bajaj Allianz Life Insurance Company launched a value-packed goal-based Ulip named, Bajaj Allianz Life Goal Assure. One of the features of this new scheme is the return of mortality charges (ROMC), which guarantees that a policyholder will get back the cost of the life cover when the policy matures, thus enhancing the value of their corpus on maturity. According to insurance industry officials, this is the first time an insurer is offering to give back mortality charges so literally, making it a saving and investment plan on par with mutual fund industry.
