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Thinking of LTCG tax? ULIPs Are Your Answer To It

Mar 28, 2018 | 2 years ago | Read Time: 2 minutes | By iKnowledge Team

ULIPs likely to be the alternative to equities, thanks to the tax efficiency of the LTCG tax.

Mutual funds have always been a popular investment option for you, if you have been looking for long-term gains. However, the government reintroduced the long-term capital gains (LTCG) tax on equities in the union budget recently. Since this is an additional tax burden for investors investing in equities, might be a wrong choice. With its tax savings options, A ULIP could be the next best choice.

So, if you are wondering whether investors will move away from equity schemes or direct equity to ULIPs? Read on to find out:

  • LTCG tax may affect investors

The budget reintroduced a tax of 10% on long-term capital gains exceeding Rs. 1 lakh from the sale of shares. Without the benefit of indexation for LTCG in equities, as an investor, you may move to other instruments to save taxes. This could impact the mutual fund industry, as investors start looking for other alternatives.

  • ULIPs: The better alternative?

As an investor, you may start looking for instruments that help you benefit from the market without the tax burden. The closest alternative to mutual funds is a Unit-Linked Insurance Plan (ULIP).

Tax-saving under Section 80C

Few instruments have tax-saving options under section 80C of the Income-tax Act 1961. With the help of a ULIP, you can invest in equity and get tax-free returns on maturity. Regardless of whether you invest in equity, debt or balanced funds, you are entitled to tax benefits, on all asset classes in ULIPs.

No long-term gains tax

After the budget announcement on long-term capital gains taxes, a ULIP is likely to be considered as a more tax-efficient option. If you are wary of the new tax rule, you could choose equity-oriented ULIPs, as tax on long-term gains is not applicable on them.

Post-tax returns may be better than that of equity mutual funds

There is a possibility of ULIPs having better returns than equity mutual funds in the long run. More investors may gravitate towards ULIPs as you get the equity advantage without the LTCG tax clause on the maturity proceeds.

Option to switch between equity and debt funds

With ULIPs you can switch between equity and debt funds at any time in the year without worrying about tax liability. This is an advantage that investors don’t get with mutual funds. (Switching between MF asset classes has tax implications that may lower returns.)

Good for long-term investments

ULIPs are a good instrument to fulfill your long-term investments with an added benefit of protection. Like mutual funds, you can invest in ULIPs every month. If you are planning your children’s education, an international vacation or a child’s marriage, a ULIP will be a good fit. 

Online ULIPs can be cost-effective

Buying ULIPs from an insurer’s website can cost you less, as it doesn’t involve fees for agents or sales staff. So, ULIPs are cost-effective as an instrument and most online ULIPs have low policy administration or fund allocation charges. This brings down the premium amount significantly. You can go for iMaximize a ULIP plan offered by Aegon Life.


There are pros and cons to investing in mutual funds and ULIPs, but investors are more likely to move towards ULIPs considering the LTCG tax levied on mutual funds.

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