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?
Read moreGuaranteed Tax Savings
Under sec 80C & 10(10D)₹1 Crore
Invest ₹10k Per Month*Zero LTCG Tax
Unlike 10% in Mutual FundsTop performing plans with High Returns*
Invest ₹10K/month & Get ₹1 Crore returns*
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.
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.
*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
^Tax benefit are for Investments made up to Rs.2.5 L/ yr.
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
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