More burden on Ulip holders

BUDGET & THE INDIVIDUAL

INSURANCE: Ulip might get more expensive because of a service tax on asset management companies.

Under the Union Budget proposal, AMCs offering Ulip products will be treated on the same footing as mutual fund AMC with regards to the payment of services tax of 12.36 per cent per annum, including education cess of 3 per cent.

The immediate impact of this measure could be increased AMC charges for the investors.

Currently, the AMC charges varies between 0.7 and 2 per cent of net asset value, depending on the products. "Our assessment is that the overall impact could be in the range of 10-20 per cent, given the prevailing AMC charges," says, Vivek Sood, chief financial officer, Tata-AIG life Insurance.

Sood, also added that they were yet to arrive at the conclusion, whether these charges will be transferred to the investors or absorbed fully or partially at the AMC level.

Adds Sashi Krishnan, chief investment officer, Bajaj Allianz Life Insurance, "Additional charges will be added to the annual AMC charges and may be levied on the investors. But we believe that in percentage terms this is marginal."

In terms of percentage, additional charges may not seem very high. However, in absolute terms, the numbers can be significant. For instance, if you have already invested Rs 1 lakh in an Ulip (sum assured say Rs 10 lakh for 20 years), you will be charged Rs 1,000 annually by the AMC (that is 1 per cent of the NAV).

The service tax on this amount will be Rs 123.60, which can be passed on to you. And the numbers will keep going up as the size of the corpus increases.

Industry estimates say that the private players are having a total corpus of about Rs 75,000 crore invested through Ulips. Now consider this, at 1 per cent AMC charges and an additional 12.36 per cent service tax, the finance ministry will get around Rs 92.7 crore per year.