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
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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
|