A fixed deposit (FD) is a financial instrument provided by banks or NBFCs which provides investors a higher rate of interest than a regular savings account, until the given maturity date. . But ever since the 50-basis point repo rate cut implied by RBI, there has been a significant impact on the fixed deposit rates across all banks in India. Hence, the rate of return depending on this new implication is most likely to take a toll on the tax-saving fixed deposits.
Do We Have An Alternative To Bank FDs?
Now that FDs are likely to provide low returns, many people are considering Unit Linked Insurance Plans as a worthy alternative. In fact, it allows you to invest in funds of your choice and enjoy insurance coverage, all under a single policy.
Basically, a portion of your premium amount is diverted towards life cover while the remaining amount is used to invest in equity or debt funds for gaining high ULIP returns. Pretty much like mutual fund investments, here, you will be allotted units which hold a net asset value (NAV). The NAV helps determine the rate of return.
How Are ULIP Plans Better?
To know how unit linked insurance plans are better compared to bank FDs, here are some of the prominent benefits of this policy are explained as follows –
High Tax Savings
ULIPs are very tax-friendly, mainly because the premiums that you make towards the policy are tax-deductible under Section 80C of the Income Tax Act. Moreover, the amount that you receive after the policy matures is also tax-free under Section 10(10)D.
However, when it comes to tax-saving FDs, only your investment amount is tax-deductible under Section 80C. The interest that you earn on your FDs is still taxable.
Generally, bond rates go up when the interest rates are decreasing. Also, as there will be more rate cuts expected from the RBI because of reducing inflation, you will observe more capital appreciation from the bonds.
Hence, it is wise to invest in debt-oriented plans after the repo rate cute implied by RBI. In case you are ready to handle a higher risk, opt for equity or even balanced ULIP plans (balanced plans majorly have moderate degree of risk).
Coverage for Life
One of the unique facility is that along with investment benefits, it provides life cover. It is something you will not find in any other investment plan.
It is, however, noteworthy that as per the IRDA (Insurance Regulatory and Development) guidelines, ULIP plans provide life cover for at least times of the annualized premium.
A Final Thought
The ULIP plans are quite beneficial for someone looking to earn high return on their savings, enjoy life cover, and tax benefits all under one roof.
To enjoy all these benefits, consider the Bajaj Allianz ULIP plans at Finserv MARKETS. It offers you great flexibility and high returns. Allow your money to grow with dual benefits – market investment as well as insurance coverage.
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