Much before the row between two regulators 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 the 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 majority of their corpus in capital markets.
While a war of words has been continuing since then between the two regulators over this issue, SEBI last Friday banned 14 life insurance companies from raising funds through unit-linked insurance policies, which invest the money collected into equity and debt markets.
A day later, IRDA asked the companies to ignore the SEBI order and do business as usual.
The ball has since gone into the Finance Ministry's court and both SEBI chairman C B Bhave and IRDA chief J Harinarayan had separate meetings with Finance Secretary Ashok Chawla on the ongoing tussle between the two regulators.
"We need to look at both the orders internally and discuss it," Chawla told reporters here today.
Later in the day, Finance Minister Pranab Mukherjee said SEBI and IRDA have agreed to maintain the status quo that existed before market regulator's ban.
The turf war concerns the nature of ULIPs which account for over 50 per cent of the total life insurance business in the country.