ULIPs to be taxed similar to MFs

Henil Shah
/ Categories: Mutual Fund, MF Unlocked
ULIPs to be taxed similar to MFs

The Union Budget presented on Monday has proposed to tax capital gains arising out of Unit Linked Insurance Plans (ULIP) with a premium of more than Rs 2.5 lakh per annum. This was done in order to have a level playing field with respect to mutual funds. Having said, this would be applicable for the new ULIPs that would be purchased on or after February 1, 2021. The old ULIPs would continue to enjoy the exempt-exempt-exempt (EEE) status. Only the maturity amount of ULIPs or gains arising from redeeming the units of ULIPs with a premium of or above Rs 2.5 lakh would be taxed. However, the death benefits would continue to be tax-free irrespective of the premium amount. Furthermore, this rule is applicable to the sum of a premium of the ULIPs and not the single ULIP. Say, for instance, you have three ULIPs and the sum of the premium of all three ULIPs is above Rs 2.5 lakh, then only the new tax treatment would be applicable. 

 

These new changes would indeed benefit to curb the mis-selling of ULIPs. Previously, ULIPs were sold on three main grounds, the first being protection via life insurance, the second being returns, and the third being taxation. Nevertheless, very few agents have that courtesy to explain the charges involved and set realistic return expectations. Now with these changes in tax treatment, it becomes easier to make an apple-to-apple comparison with that of mutual funds. However, this apple-to-apple comparison would only be worth for investments above Rs 2.5 lakh annually or Rs 21,000 monthly via systematic investment plan (SIP). Below this amount, ULIPs would still remain a tax-effective product. 

 

Top five performing ULIPs & MFs

 

Top Five Large-Cap ULIPs

1 Year

2 Year

3 Year

5 Year

10 Year

Aditya Birla Sun Life - Individual Super 20 Fund

24.34

16.67

11.06

15.01

11.43

HDFC Standard Life - Growth Fund Investment Life

27.70

17.34

9.93

14.76

11.66

HDFC Standard Life - Growth Fund Investment Pension

27.74

17.37

9.90

14.75

11.67

Max Life - Growth Super Fund

25.43

15.65

10.36

14.61

11.12

Bajaj Allianz Life - Equity Growth Fund II

24.54

13.86

8.51

14.54

13.58

 

Top Five Mid-Cap ULIPs

1 Year

2 Year

3 Year

5 Year

10 Year

Tata AIA Life - Whole Life Mid-Cap Equity Fund

26.11

20.13

8.54

15.72

16.93

Reliance Life Midcap Fund 2

26.01

12.55

3.84

13.78

12.61

Reliance Life Midcap Fund 1

25.78

12.25

3.78

13.63

12.16

Aditya Birla Sun Life - Individual Multiplier Fund

20.95

12.47

2.42

13.60

13.63

HDFC Standard Life - Opportunities Wealth Builder Fund

21.39

14.18

5.53

13.43

12.32

 

Top Five Large-Cap MFs

1 Year

2 Year

3 Year

5 Year

10 Year

Mirae Asset Large Cap Fund Regular Growth

18.50

14.96

8.64

15.87

15.08

Axis Bluechip Fund Growth

17.99

18.70

13.98

16.01

13.75

SBI Bluechip Fund Regular Growth

19.46

16.74

8.15

12.68

13.64

BNP Paribas large Cap Fund Growth

18.73

18.30

9.70

13.40

13.62

Canara Robeco Bluechip Equity Fund Regular Plan Growth

24.06

20.40

13.40

16.14

13.20

 

Top Five Mid-Cap MFs

1 Year

2 Year

3 Year

5 Year

10 Year

Edelweiss Mid CapFund Growth

24.71

20.11

5.36

14.36

17.33

Invesco India Mid Cap Fund - Growth

21.67

17.83

8.93

14.35

17.17

BNP Paribas Mid Cap Growth

18.64

17.57

4.74

12.03

16.73

Kotak Emerging Equity Scheme Growth

18.50

19.53

7.73

15.59

16.64

UTI Mid Cap Fund Regular Plan Growth

26.91

18.70

5.84

12.38

16.48

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