Investors likely to shift to Ulips

Mumbai, Feb. 4: With the Budget spooking the market sentiment with the 10 per cent LongTerm Capital Gains ( LTCG) tax on equities gains, American brokerage Morgan Stanley has opined that life insurance products, particularly Ulips, could be relatively attractive from a medium- to long- term.

The equity markets have been bleeding in since the Budget announ- cement, after finance minister Arun Jaitley sought to reintroduce the LTCG tax on equity investments at 10 per cent on profits in excess of ` 1 lakh.

It also has slapped a 10 per cent distribution tax on long- term capital gains from equity mutual funds. That apart there is also a dividend distribution tax at the hands of the receiver.

“We believe against the given backdrop, life insurance products, particularly Ulips ( unitlinked insurance plans), could appear relatively attractive from a mediumto long- term perspective, Morgan Stanley said in a weekend note.

“Taxation of insurance products is governed by Section 10D ( of Income Tax Act), where the income is tax- free in the hand of the investor at the time of withdrawal.

“We await the Budget fine- print for further clarity, but if the above details are accurate, it should benefit private players like ICICI Prudential Life and HDFC Life,” it said.

Meanwhile, mutual fund experts are of the opinion that the taxation move on equity gains as well as on dividends from mutual funds could pose a small hurdle for investment flows into MFs.