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ULIP vs NPS

By Finserv MARKETS - Mar 28,2020
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NPS VS ULIP - Which is a better investment option?

Gone are the days when making the right investment took months of research, listening to hours of sales pitches and relying on second-hand information from friends and family. In today’s day and age, prospective investors have all the resources they need to make the perfect investment choice for their financial needs. But with the variety of investment options around, the trickiest question often boils down to the choice between two options.

The case of choosing between ULIP vs NPS is no different. While on one hand, ULIP has its advantages such as dual benefits of insurance and investments, NPS has the benefit of a stable post-retirement pension. The NPS vs ULIP debate, therefore, requires a closer look to determine which should be the investment option for your specific financial needs.

What is a ULIP?

Let us begin the ULIP vs NPS discussion by recapping what ULIP plans represent for a prospective investor. A Unit Linked Insurance Plan or ULIP is essentially a dual-benefit life insurance policy. With ULIPs, a policyholder can not only avail insurance coverage but also gains the opportunity of investing in the funds of his choice. In this way, not only does he ensure that he safeguards his family’s future needs, but he also enjoys the substantial market-linked return of investment.

What is the NPS?

To assess the NPS vs ULIP comparison better, let us take a look at what the National Pension Scheme or NPS achieves for an investor. While employed, investors can regularly contribute to their NPS accounts and on retirement, can withdraw a part of this amount to meet their post-retirement requirements. The remaining is disbursed to the investor in the form of a regular income, which is a pension. As a government-backed initiative, the NPS is a retirement-centered scheme that is aimed mainly at building a retirement corpus for the investor.

Differences Between ULIPs and NPS

As investment opportunities, ULIPs and NPS are accompanied with their own unique features and qualities. While one fares better in one aspect, the other might succeed in another important aspect. Here are some key comparisons between ULIP vs NPS that can shed light on the particular features of the two investment options.

NPS ULIP
Cost NPS is considered a low-cost investment for most. An initial subscription charge of Rs. 100 is levied while management fees are limited to under 0.25%.

Moreover, when opening an NPS account, you must invest Rs 500 for Tier I and Rs 1,000 for Tier II accounts.

The investments in ULIPs are made in debt and equity instruments. As a result, the management fees tend to be higher than that of NPS.

However, while charges for ULIPs are typically higher, they offer more freedom in terms of how your funds are managed.

You can opt for debt, equity and balanced funds as well as a variety of more options. You can also switch your funds over time to manage your changing investment strategy.

Minimum contribution Every fiscal year, you must contribute a minimum of Rs 1,000 for Tier I and Rs 250 for a Tier II account. The minimum contributions for ULIPs are determined by the premium amount decided at the beginning of your ULIP policy. These can be made monthly or annually.
Withdrawals For partial withdrawals, you must meet certain specific conditions. Also, you can withdraw a maximum of 20% of the corpus before you turn 60 years old. After you turn 60 years of age, you can only withdraw up to 60% of your corpus. ULIPs come with a lock-in period of 5 years. After this time, you can make partial or complete withdrawals of your accumulated fund value.
Tax NPS comes under the tax bracket EET. The amount is withdrawn at maturity, which can be up to 60% of the corpus, is subject to taxation. Contributions to ULIP are tax-deductible under Section 80C. It also offers a tax-free maturity amount as per Section 10 (10D) as long as the annual premium is less than 10% of the sum assured.

ULIP vs. NPS: Which one should you go for?

All in all, the NPS vs ULIP debate is best settled by determining what kind of investment opportunity you are looking for. NPS is ideal for those looking for a low-cost, tax-saving instrument that can provide you with a post-retirement pension. ULIPs, however, are ideal for investors looking to meet various types of financial goals, including saving for retirement. With the benefit of insurance coverage as well as the convenience of choosing your own preference of funds, ULIPs offer immense flexibility and value for money to the average investor.

The key is to avail of a ULIP with the right insurer that can provide you with a plan that is customized for your needs. To that end, the ULIP plans at Finserv MARKETS serve as excellent investment-cum-insurance options. With the ULIPs on Finserv MARKETS, you can invest based on your specific financial goals and requirements. On Finserv MARKETS, apart from their retirement-focused ULIP plans, you could even opt for a child plan or an investment-centered ULIP plan.

Finserv MARKETS, a subsidiary of Bajaj Finserv, is a one-stop digital marketplace that has been created for consumers on the go. It offers 500+ financial and lifestyle products, all in one place. At Finserv MARKETS, we understand that every individual is different. And that’s why we have invested in creating a proposition – Offers You Value. A value proposition that ensures you get offers that are tailor-made for you. We also offer an amazing product range and a unique set of online offers across Loans, Insurance, Investment, Payments, and an exclusive EMI store. Be it in helping you achieve your financial life goals or offering you the latest gadgets, we strive to offer what you are looking for. From simple and fast loan application processes to seamless and hassle-free claim-settlements, from no-cost EMIs to 4 hours of product delivery, we work towards fulfilling all your personal and financial needs. What’s more! Now enjoy the same benefits in just one click with our Finserv MARKETS App.

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522