When you are investing your life savings, you come across various financial instruments where you can put in your money. You want the money you invest to be safe, but also you want to earn interest in the money invested. Earlier, fixed deposits (FDs) were the go-to option for most people, as it was a safe investment. You could simply put your money in an FD and forget about it. But because of the low-interest rates of FDs, people have looked for alternative options. One such alternative option various people choose is the United Linked Insurance Policy (ULIP).
What are ULIPs?
ULIP is a multi-faceted type of life insurance. It is a two-in-one product comprising life insurance and investment. The premiums that you pay in ULIPs are used to provide you with a life cover and also as an investment. The company further invests your money in different financial instruments depending on the fund you choose. A ULIP provides financial security to your loved ones in your absence with the life cover. Along with it, it also provides you with a return on your investments, which can help you meet your financial goals. Also, the charges of a ULIP are easy to understand and interpret.
What makes ULIPs better than FDs?
When you are planning to invest your hard-earned savings, you want to invest in instruments that keep your money safe but provide good returns too. Both FDs and ULIPs have their own set of advantages and disadvantages. When compared to an FD, ULIP benefits are much more because of the following reasons –
Gives you higher returns
The returns that you receive from FDs cannot beat the rising inflation rates. Also, as inflation increases, the rate of internet FDs goes down. Even bond ULIPs, which are one of the safest types of ULIP, provide higher returns when compared to FDs. When you invest your money, you want to receive good returns. FDs cannot provide high returns like ULIPs. Also, if you have a high-risk appetite, you can also opt for equity or balanced ULIPs. Usually, equity ULIPs have a high risk involved but give the highest returns.
Is a much more flexible investment
Based on your risk endurance, there are three types of ULIP plans. Equity-based, debt-based, and balanced ones. Equity-based ones, as mentioned above, have high risks as the money invested in these funds is put into the equity market. Whereas the money in the debt-based funds is invested in safe instruments like corporate bonds or government bonds. In balanced-based ULIPs, your money is partly put in bonds and partly invested in equity. ULIPs are quite flexible as they allow you to switch between debt and equity options whenever you want. This allows you to seek advantage of the market situations and earn maximum returns. FDs have a typical way of operating, where there is a fixed return of interest. With a low rate of interest, you will get low returns from an FD.
Has way more tax benefits
The sum that you invest in your FD is exempt from taxes. However, the returns that you receive on that sum are taxable. The premiums that you pay in a ULIP plan are exempt from taxes under section 80C of the Income Tax Act. Also, the amount that you receive when your ULIP matures is also exempt under section 10(10D) of the Income Tax Act. Therefore, one of the biggest ULIP benefits is that the amount that you invest and the returns that you get, both are tax-free. With an FD, you pay taxes on your returns.
Provides life insurance
A ULIP is a life insurance product with an investment element attached to it. Along with the returns that you get on your investment, a ULIP plan gives you a life cover. FDs do not provide any life cover. The IRDA guidelines dictate that a ULIP has to provide a life cover that is at least ten times your annual premium. Hence, with a ULIP, you secure the future of your loved ones too, while an FD provides no cover.
A ULIP plan is a one-of-a-kind investment that secures your loved one while giving you great returns. When compared based on the factors mentioned above, ULIPs prove to be a better investment than FDs. There are several advantages and benefits that you get from a ULIP, as compared to low-return FDs.
