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ULIPs with Low Charges Can Beat Mutual Funds

By Finserv MARKETS - Dec 24,2019
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ULIPs with Low Charges Can Beat Mutual Funds

A Unit-Linked Insurance Plan is an investment product that serves the dual purpose of insurance and investment. They are quite different to traditional insurance plans. In traditional policies, the maturity amount is calculated by considering the amount assured in addition to the bonus. However, here, you get your ULIP returns as per the present market value after maturity.

Comparison between ULIPs and Mutual Funds

Here are a few differences between ULIPs and mutual funds.

  • Minimum premium payment tenure

An investment in a mutual fund has no minimum tenure. Conversely, ULIPs have a lock-in tenure of five years. In case of a unit linked insurance plans, you will have to pay the premium for a continuous period of five years. This is to ensure that your investment does not go towards a discontinued fund.

  • Taxation

ULIPs and mutual funds have equity and debt investment options. In case of a mutual fund when you switch from a debt scheme towards an equity-oriented scheme, it will attract capital gains taxation.

In case of a unit linked insurance plan, if you switch between equity and debt funds, you will not have to pay any tax. Moreover, one of the key ULIP benefits is that the maturity value that you receive towards the end of the policy tenure is tax-free. However, you need to pay a capital gain tax for the returns that you receive from mutual funds.

  • Charges

There is a single charge in a mutual fund, which is based on the size of the fund. It is generally below 2%. Unit linked insurance plans, on the hand, carry four different charges.

The first is the premium allocation charge; it is charged before your premium is invested. The second is the policy administration charge, which is incurred for the administration expenses towards managing the ULIP. The third is the fund management charge, which is capped at 1.35% of the actual fund value and not on the premium. The fourth charge is the mortality charge, which is the cost incurred to provide you with an insurance cover.

Benefits of the charge structure in ULIP

The ULIP benefits of the charge structure include tax-free scheme switches, tax-free maturity proceeds and tax deduction of the premium paid as per Section 80C of the Income Tax Act, 1961. Moreover, you get a life insurance cover, which adds to the benefits.

With ULIPs, you only have to pay one premium every year and after the completion of the tenure, you can receive your tax-free maturity value in one go. If you invest in the most suitable type of unit linked insurance plan as per your needs, it will help generate wealth and achieve your long-term goals. The aforementioned benefits give it an edge over mutual fund investments.

Wish to give your investment portfolio the much-needed boost? Get in touch with us, at Finserv MARKETS and invest in a ULIP as per your risk appetite. You can avail of different benefits such as life insurance cover, returns on investment and tax-savings under sections 80C and 10(10D). Moreover, you can take advantage of free fund switches, no charge during fund allocation, no return of mortality charges, and a wide range of investment portfolio strategies.

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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