LTCG not to apply to ULIPs: five things to know
Long term capital gains (LTCG) of 10% have been imposed on equity investments and investments in equity-oriented mutual funds. The LTCG, however, will not apply to ULIP investments.
This provides ULIPs a relative advantage to direct equity and mutual fund investments. We believe some part of the tax advantage was justified given the big five-year lock-in for ULIP investments, says the report.
While nature of the average mutual fund investor and ULIP investor differs especially on the duration of investment, a small proportion of incremental flow from equity MFs to ULIPs could lead to high growth for ULIP-led insurers, reads the Nomura report.
In the last 12 months, total net inflows in equity-related mutual funds have been Rs 2.2 lakh crore (Rs 18,500 crore monthly run-rate). In comparison, the total new business inflow for private insurers in the last 12 months was Rs 38,000 crore and assuming, 65% of the new business is ULIPs, is Rs 25,000 crore of new ULIP business implying a monthly run-rate of Rs2,000 crore of ULIPs.
From a budget respective, Nomura sees a re-rating in ULIP-led life insurers, leading to BUYs on ICICI Prudential Life and SBI Life.