Imposition of LTCG tax: Does it make ULIPs a better investment bet than equity mutual funds?

The Union Budget 2018reintroduced the long-term capital gains (LTCG) tax on income from equity stocks and mutual fund investments. The imposition of 10 percent capital gains tax on profit exceeding Rs 1 lakh made from the sale of equity mutual fund schemes units held for over one year means that the benefits earned earlier for holding these units for a full year will now not be available. This also means that the taxpayers, salaried or non-salaried, looking to earn returns from the market will now have to face an additional tax burden.

However, if there a way out of getting the benefit of the appreciation from the market and yet not pay the LTCG tax? “The LTCG tax burden does not extend to unit-linked insurance plans (ULIPs). Customers holding on to ULIPs for the long run have earned 12-15 percent returns in the past. The emergence of low-cost ULIPs in the market coupled with the benefits of EEE (Exempt-Exempt-Exempt) tax structure has made them more appealing than equity linked savings scheme (ELSS),” said Santosh Agarwal- Head of Life Insurance,

However, whether one chooses a ULIP or equity mutual funds, it is crucial that the selection should not be a knee-jerk reaction. ULIPs may be more tax efficient today, but there is no guarantee for the same to continue in the future. “Current equity investors are worrying that they don’t have an alternative to equity mutual funds to achieve long-term financial goals but ULIPs are the safe bet delivering the same benefits,” said Naval Goel, Founder & CEO,

It is, therefore, a good option for investors to do a comparison between ULIPs and equity mutual funds. However, advisers suggest that both these instruments should be a part of one’s portfolio while developing one’s overall financial plan.