Much before the row between SEBI and IRDA over regulating ULIPs, the Finance Ministry has been considering these unit-linked insurance products “broadly similar” to mutual funds.

The Finance Ministry’s Central Board of Excise and Customs (CBEC) had opined way back in February 2008, and again reiterated this view in February 2010, that ULIPs bear similarity to mutual funds.

While ULIPs are regulated by the Insurance Regulatory and Development Authority (IRDA), regulation of mutual funds is done by market regulator SEBI.

In a circular issued on February 26 this year, CBEC had said, “ULIPs are broadly similar to mutual funds, except that they are required to segregate a certain part of the premium towards the life insurance of the plan holder.”

In a previous circular on February 29, 2008, the indirect tax department had said that ULIPs enables the policyholder to take part in the scheme collectively and becoming the beneficiary like mutual funds.

This circular followed the then Finance Minister P. Chidambaram announcing in his 2008-09 budget speech that ULIPs should be brought under service tax net to bring asset management service provided under ULIP “on par with asset management service provided under mutual funds.”

Both the circulars were related to service tax implications for ULIPs.

Early this year, SEBI issued show-cause notices to some life insurers asking why action should not be taken against them for selling ULIPs without its approval, as these products invest the majority of their corpus in capital markets.

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