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Low-return FDs underperform against ULIPs
For risk-averse investors who want to save on income tax, tax-free bank fixed deposits (FDs) are usually one of the main investment tools. However, the 50-basis point repo rate cut announced by the RBI in Sep 2015 is expected to impact fixed deposit rates across all banks. With SBI announcing cut in deposit rates by 25 basis points (effective from 5th October 2015), more banks are likely to follow suit. Thus, the rate of return from new tax-saving fixed deposits would surely take a beating. This raises the question: is there an investment instrument that can replace tax-free bank deposits and deliver on returns, capital security while offering tax-saving benefits?
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- Low-return FDs underperform against ULIPs
List of ULIP Funds ~
Fund Name
AUM
NAV
Returns (in %)
3 Year
5 Year
10 Year
Midcap Fund
SBI Life
AUM:67,697 Cr
67,697 Cr
NAV
48.82
0.39%
Returns
14.11%
Opportunities Fund
HDFC Life
AUM:35,621 Cr
35,621 Cr
NAV
76.05
0.62%
Returns
10.29%
High Growth Fund
Axis Max Life
AUM:16,228 Cr
16,228 Cr
NAV
118.76
1.11%
Returns
20.3%
Highest Returns
Opportunities Fund
ICICI Life
AUM:3,711 Cr
3,711 Cr
NAV
57.84
0.46%
Returns
12.09%
Highest Returns
Multi Cap Fund
Tata AIA Life
AUM:12,199 Cr
12,199 Cr
NAV
65.18
0.76%
Returns
12.22%
see more plans
Disclaimer :
˜The insurers/plans mentioned are arranged in order of highest to lowest first year premium (sum of individual single premium and individual non-single premium) offered by Policybazaar’s insurer partners offering life insurance investment plans on our platform, as per ‘first year premium of life insurers as at 31.03.2025 report’ published by IRDAI. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. For complete list of insurers in India refer to the IRDAI website www.irdai.gov.in
ULIPs: An Alternative to Bank FDs
Unit-linked Insurance Plans (ULIPs) give investors the benefit of both investment and insurance under one umbrella. A part of the policy premium is used to provide you with life cover while the rest is used to invest in equity and/or debt markets. Just like mutual funds, you will be allotted units, which will have a net asset value (NAV) assigned to them. These values will determine the rate of returns of a ULIP plan.
How are ULIPs better?
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Higher tax savings: ULIPs are tax friendly as their premiums qualify for tax deduction under Section 80C of the Income Tax Act while the maturity amount is tax free under section 10(10)D. In case of tax saving deposits, only your investment amount would qualify for deduction under Section 80C. The interest earned from such deposits would however be taxable.
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Higher returns: Bond prices tend to go up when interest rates are falling. As more rate cuts are expected from RBI due to decreasing inflation, more capital appreciation can be expected from bonds. Thus it makes more sense to invest in debt-oriented ULIPs, after the recent repo rate cut. You can also opt for equity or balanced ULIP if you have higher risk appetite, and Risk assessment helps in selecting the best SIP.
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Life Cover: ULIPs provide life cover while tax saving deposits do not provide any. According to the IRDA guidelines of 2010, ULIPs must provide life cover of at least 10 times of the annualized premium.
The below table shows how debt market and equity ULIPs outperform tax-free fixed deposits (Click here to know more):
| Tax free deposits | ULIP (Debt/Government securities) | ULIP (Equity/Market linked) | |
| Initial investment | Rs 50,000 | Rs 50,000 | Rs 50,000 |
| Interest rate | 8%-8.5% | 7.5–9.5% | 12–24% |
| Value after 5 years | Rs 76,100 | Rs 78,700 | Rs 1,46,000 |
| Tax paid on returns | Rs 7,842 | NIL | NIL |
| Returns after Tax | Rs 68,200 | Rs 78,700 | Rs 1,46,000 |
| Rate of returns after tax | 6.03–6.44% | 7.05–9.5% | 12–24% |
| Life Cover | N.A. | Available | Available |
| Minimum investment tenure | 5 years | 5 years | 5 years |
| Tax saved on investment | Rs. 15,000 | Rs 15,000 | Rs 15,000 |
Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer.
As above, for investor looking to take low risk and looking for better returns could consider ULIPs as a good option.
Insurers Offering ULIPs
Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or
insurance product offered by an insurer.
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˜The insurers/plans mentioned are arranged in order of highest to lowest first year premium (sum of individual single premium and individual non-single premium) offered by Policybazaar’s insurer partners offering life insurance investment plans on our platform, as per ‘first year premium of life insurers as at 31.03.2025 report’ published by IRDAI. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. For complete list of insurers in India refer to the IRDAI website www.irdai.gov.in
*All savings are provided by the insurer as per the IRDAI approved insurance
plan.
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
+Returns Since Inception of LIC Growth Fund
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
++Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.
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