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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?
- 4.8 Rated
- 58.9 Million Registered Consumer
- 51 Partners Insurance Partners
- 26.4 Million Policies Sold
Best Ulip Plans
- Plan starting from ₹1,000/month
- Save upto ₹46,800 in Tax under section 80 C
- Zero LTCG Tax(Unlike 12.5% in Mutual Funds)
- In built life cover
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58.9 Million
Registered Consumer
51
Insurance Partners
26.4 Million
Policies Sold
In-built life cover
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- Low-return FDs underperform against ULIPs
Top ULIP Funds
Fund Name
AUM
NAV
Returns (in %)
3 Year
5 Year
10 Year
Whole Life Mid Cap Equity Fund
Tata AIA
AUM:13,041 Cr
13,041 Cr
NAV
155.97
-0.88%
Returns
24.07%
Top 200 Fund
Tata AIA
AUM:2,044 Cr
2,044 Cr
NAV
178
-1.55%
Returns
24.74%
High Growth Fund
Max Life
AUM:7,665 Cr
7,665 Cr
NAV
119.16
-0.77%
Returns
29.03%
Multiplier
Birla Sun Life
AUM:4,680 Cr
4,680 Cr
NAV
100.49
-0.58%
Returns
24.01%
Virtue II
PNB Metlife
AUM:3,473 Cr
3,473 Cr
NAV
79.02
-0.57%
Returns
22.28%
Fund Name
AUM
NAV
Returns (in %)
3 Year
5 Year
10 Year
Whole Life Stable Growth Fund
Max Life
AUM:256 Cr
256 Cr
NAV
60.88
-0.26%
Returns
13.13%
Balanced Fund
Max Life
AUM:367 Cr
367 Cr
NAV
48.16
-0.13%
Returns
13.48%
Growth Plus Fund
Max Life
AUM:591 Cr
591 Cr
NAV
37.08
-0.13%
Returns
13.79%
Save N Grow Money Fund
Max Life
AUM:70 Cr
70 Cr
NAV
58.68
-0.12%
Returns
10.4%
Creator
Max Life
AUM:541 Cr
541 Cr
NAV
100.45
-0.23%
Returns
10.51%
Fund Name
AUM
NAV
Returns (in %)
3 Year
5 Year
10 Year
Pure Fund
Max Life
AUM:575 Cr
575 Cr
NAV
54.02
-0.37%
Returns
16.86%
Builder
Max Life
AUM:243 Cr
243 Cr
NAV
89.11
-0.06%
Returns
7.43%
Whole Life Income Fund
Max Life
AUM:773 Cr
773 Cr
NAV
37.75
0.00%
Returns
5.89%
Conservative Fund
Max Life
AUM:235 Cr
235 Cr
NAV
54.81
-0.03%
Returns
7.17%
Protector
Max Life
AUM:304 Cr
304 Cr
NAV
63.69
-0.02%
Returns
6.28%
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.
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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.
Trending in ulip plan
*All savings are provided by the insurer as per the IRDAI approved insurance
plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^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
~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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