The requirement of having a Permanent Account Number, or PAN, for investing in a mutual fund may have been deferred till December. But the mutual fund industry fears losing out to unit linked insurance plans, or ULIPs, reports CNBC-TV18.

Just when the Indian mutual funds were hoping to grow their investment portfolios, they face a bigger challenge. While market regulator Sebi has made it mandatory for mutual funds to allow only those investors who have a PAN card to invest, come December, insurance ULIPs have no such requirement. And since ULIPs almost mirror mutual funds in their structure, funds fear big money flowing away from them to the ULIPs.

“On the one hand, it is good to know your customers and to take all the precautions. But at the same time, it should be made applicable across financial service industries, because the challenges are the same,” said Mukul Gupta, CEO, Birla Sun Life MF.

With Sebi's rule on PAN card requirements for investments in mutual funds, fund managers fear ULIPs may now attract more equity from their potential lower-income customers. Out of the total customers buying ULIPs, only 20% submit a PAN card for identification. But insurance companies say that 40% of their customers come from small towns compared to 2-3% for mutual funds. But those fund houses launching micro systematic investment plans, or SIPs, and wanting to penetrate deep into the lower income groups in smaller cities, may get hit hard.

“There is a concern - a situation where there is in a way discriminatory treatment. I hope the government appreciates it and this is harmonized,” said AP Kurian, Chairman, Association of Mutual Funds in India, or AMFI.

Mutual funds say a higher commission structure and the advantage of being able to use celebrities to endorse products, already puts ULIPs at an advantage. And now, PAN could be the latest and perhaps the most potent threat to them in their fight for investor wealth.