ULIPS or unit linked term plans have been here for quite some time now. In the past decade, ULIP had lost its market shares to the mutual funds. With the opening up of insurance, banking, and asset management sector since the dawn of the twenty-first century, the Indian market now has no dearth of investment products.
There is an investment product for every type of investor and variety in new age investment scheme is its epitome. ULIP has now entered the new age of investment products, and ULIP portfolio is as actively managed as top mutual fund portfolios.
New Age ULIP and Mutual Fund features
If you are an investor who is seeking to invest in a mutual fund plan, then you can also consider the ULIP schemes. ULIP is an astute amalgamation of investment and life insurance benefits into one plan. So if you purchase a ULIP plan, you will be getting not only an investment scheme but also a life insurance cover. New age ULIPs are being offered in many possible varieties like the mutual funds, but mutual fund schemes do not include personal life cover though some mutual fund schemes do offer group life insurance cover under certain conditions. Under the new age ULIP plan, both the life cover and investment plans offer a number of choices. Thus life cover under a ULIP policy can be pure life cover or life cover with additional benefits like accident, health or critical illnesses cover, survival benefit, maturity benefit, and other benefits.
The invested component of ULIP plan is like a mutual fund portfolio. ULIP fund manager invests the apportioned premium into investment instruments. New age ULIPs offer variety in the investment part as well. Thus like the different categories of a mutual fund, the invested part of a ULIP plan can have different types of investment instruments as according to the invested portfolio objectives. ULIPs can invest in equity and debt instruments or both. Equity composition in a ULIP fund can be large, mid, small cap. Like the mutual fund plans ULIPs can also offer differentiated risk/return portfolios.
Some new age ULIPS are offering returns on mortality charges; one such NULIP is Bajaj Allianz life goal assure. Mortality charges in a ULIP plan are used for providing life cover. Return of mortality charges imply returns of the entire amount charged for life cover at ULIP maturity.
New Age ULIP and Mutual Fund returns
New age ULIPs are yielding returns as good as the top ranking mutual funds of the country. ULIPs funds are constructed with the objective of long-term returns, and some NULIPs are yielding above 20 % returns over five year horizon period. The top-performing equity mutual funds are at present yielding around 18 to 19 % annualized returns over the five-year investment horizon. Check the returns of the modern ULIPs using the Policy Bazaar instant calculator. At the Policy Bazaar portal, you can access returns and the salient features of top ULIPs schemes within seconds using the online calculator. For calculating the returns access the Policy Bazaar portal here. Scroll down to ULIPs calculator and select the company and ULIP plan from the drop-down menus and click on calculate tab. The portal will return you the growth of the fund as returns for one, three and five year periods. Other pertinent fund features also get displayed alongside including fund type (whether moderate or high risk), fund objective definition. For example, if under a company name you choose Aviva life insurance, under plan name you choose ‘i Maximize plan’ (out of total three plans), and then you click calculate. Under fund name, you will get four types of the fund for this plan (Debt fund, secure fund, blue-chip equity fund, stable fund, accelerator fund). Returns of the plan vary as per type of fund. Five-year returns for the plan are within 8% to 12.3 % range.
New Age ULIP and Mutual Fund portfolio
The ULIP portfolio can have portfolio options of pure equity, pure debt or hybrid. In comparison mutual fund portfolio schemes are offering more varieties in the portfolio, mutual fund portfolios have base categorization and sub-categorization within a particular category. The mutual fund portfolio is much more diversified than the ULIP portfolio. The new age ULIPs, however, have started offering greater diversification of investment portfolio, especially the equity-based ULIPs.
New Age ULIP and Mutual Fund tax treatment
All ULIP schemes are tax-free. Under section 80 c tax payer can deduct the amount contributed in ULIP scheme from taxable income and reduced taxable income base. Under section 10 of the income tax act, ULIP returns are not taxed for long-term capital gains tax. Returns earned for ULIP scheme is entirely exempt from tax. The amount received at maturity of ULIP scheme is not taxable. Mutual funds, on the other hand, are not all exempt from tax. Till this financial year ELSS mutual funds were tax-free, but from the next tax year LGCT of 10 % on ELSS returns above Rs 1 lakh a year will be charged, however, tax deduction benefit for ELSS will continue to apply under section 80 c.
Fund switching in ULIP and Mutual Fund
ULIPs offer a number of free switches between funds in a year which can be up to four free switches. An investor can switch between an equity, debt or hybrid fund in the same ULIP without having to pay any additional charges. There is no concept of fund switching in mutual funds. If one wants to switch a mutual fund, then the entire scheme needs to be closed, and a new one opened.
Redemption of ULIP and Mutual Fund
Like open-ended mutual funds, ULIP funds also comprise of open-ended units which can be redeemed on their NAV value. ULIP units can be redeemed after lock-in period of five years or some new age ULIPs after lock-in of three years. If an investor wants to invest more amounts in ULIP fund then s/he can purchase more of ULIP fund units. Thus investment in a ULIP scheme can be increased or decreased after the lock-in period.
Lock in period of ULIP and Mutual Fund
The lock-in period of ULIPs used to be five years, but now several new age ULIP schemes have shortened the lock-in period to three years. The lock-in period for ULIP is different from maturity period. ULIP maturity period can be ten or fifteen years. Most mutual funds also have a lock-in period of three years. There is no concept of mutual fund maturity. During the lock-in period, funds cannot be withdrawn from the scheme. Should funds need to be withdrawn before the lock in the period then exit load is levied by asset management company. There is another disadvantage of withdrawing funds from ULIP or mutual fund before lock-in period, and that is tax deductions get reversed. If ULIP of a mutual fund is surrendered before lock-in, then earlier deductions get reversed and are treated as income in the next tax year. If the amount is withdrawn from investment scheme before lock in, then the same is taxable.
SIP option in ULIP and Mutual Fund
Both ULIP and mutual fund offer options to invest a monthly periodic fixed amount instead of a lump sum amount. ULIP premium can be monthly like the monthly SIPs in a mutual fund scheme.
Withdrawal options in ULIP and Mutual Fund
ULIP schemes also offer facilities of withdrawal after lock-in a period like the mutual fund schemes. Some new age ULIPs are offering withdrawal of maturity benefits after each five years period before the maturity tenure of ten or fifteen years. The withdrawal benefits of new age ULIP plans match the systematic withdrawal feature of mutual fund schemes.
Fund Management charges in ULIPS and Mutual Funds
The fund management charges of ULIPs are not very much different from the expense ratio of mutual fund schemes. Regular mutual fund schemes have an expense ratio of 2 to 2.5 %. The expense ratio for direct mutual fund schemes is lower between 1 to 1.5%. The fund management charges of ULIPs are around 1.5 %. Certain ULIP plans may levy charges other than fund management, for the complete ULIP package benefits and ULIP plan riders. However, the new age ULIPs performance is far overriding the costs. For all types of ULIPs, the fund management charges cannot exceed 2.25 % annually as per the 2010 IRDA cap regulations on ULIP fund charges.
ULIP and Mutual fund group plans
There is no concept of group plan under a mutual fund scheme. Mutual fund investment is mostly a personal investment decision. However mutual fund account holder can register a nominee for his or her account. The new age ULIPs have certainly added and modified several features to make ULIP investment more gainful for the investors yet not all past features of the old ULIPs have been suspended. One salient benefit of old Ulips was an umbrella plan policy for the entire family needs including life cover, investment growth, cash for important life events, health and accident cover, retirement cover, among others. The new age ULIPs pack all these covers into one single investment product, like the old ULIPs. No other investment product packs all benefits so comprehensively in a single product for the entire family.
Online purchase of ULIPs and Mutual Fund schemes
The new age ULIP schemes are now available online like the mutual fund investment products. Online ULIPs can be purchased directly from the asset management company online portal or investors may also visit the Policy Bazaar portal. On the Policy Bazaar investment aggregator portal, investors can use the portal tools and online portal calculator to conduct a quick and swift comparison of the ULIPs and mutual fund schemes. Policy Bazaar is a customer-focussed portal. Investors can open their accounts on the Policy bazaar portal and keep track of all transactions and record of investment schemes purchased through the portal.
Top performing new age ULIPS
Some of the top performing new age ULIPs include the following
- Aegon Life I Maximize secure plan
- Bajaj Allianz future gain
- PNB MetLife smart platinum
- Max Life fast-track growth fund
- SBI Life wealth assure
- ICICI Pru wealth builder II
- LIC Market Plus-I growth fund
- TATA AIG Life Invest assure II-balanced fund
- SUD Life Dhan Suraksha plus
- HDFC Life Pro-growth plus
ULIP and Mutual Fund purchase decision
There is no hard and fast rule that if you buy a ULIP scheme, you cannot buy a mutual fund scheme or vice versa. Since IRDA suggested ULIP companies to make the ULIPs more competitive, the new age ULIPs are matching the mutual fund scheme returns. Yet a ULIP scheme is not all investments, it’s a complete life plan for the whole family, and whereas mutual funds are taxed ULIP investments qualify for tax deduction benefits and ULIP returns are tax exempt. A ULIP investment can be considered as the primary family life plan to meet all the financial goals in the various life stages of the family. Mutual fund investments can be made any time. Mutual funds still do offer greater liquidity than the ULIPs. Short-term debt based mutual funds have lock-in of only one year; the equity-based mutual funds though have a lock-in of three years.
The new age ULIPs have undergone a turnaround to offer benefits at par with other investment options like the mutual funds. The essential features of new age Ulips that make these a chosen investment solution include the following:
- Complete life plan
- Life cover, health cover, wealth accrual
- Comprehensive apportionment
- Low cost of the scheme
- High returns on investment
- Choice of the investment portfolio
- Free fund switches
- Open-ended fund
- Withdrawal privileges before fund maturity
- Tax deduction and tax exemption benefits
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