5 Reasons Why ULIP Investment Plans Makes More Sense Over Debt Mutual Funds

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ULIP Vs Mutual Funds

With the introduction of long-term capital gains (LTCG) tax in 2018, the world of investment has twitched up. The investors now are looking for other investment options where they seek market-linked returns with no tax levied on it.

The question that is now going on for a decade is that which is better ULIP plans or Mutual Funds? With the introduction of LTCG tax on equities, you might want to invest in a better option such as ULIP plans, but many people don’t know that there are seven types of mutual funds, and one of them is Debt Mutual Funds.

What is Debt Mutual Funds?

Debt Mutual Funds invest mainly in short-term fixed-income security such as:

  • Treasury Bills,
  • Government bonds,
  • Corporate Bonds,
  • Money Market instruments
  • Other debt securities of different time horizons

They are safer investment plans, but with respect to other mutual funds, they provide low returns. It has a fixed maturity day, and you need to pay a fixed rate of interest.

Reasons Why ULIPs Plan are Better Than Debt Mutual Funds

Now that you are aware of what is Debt Mutual Funds, its time for you to choose the best investment option between ULIPs plans and Debt Mutual Funds.

  1. Type of Product

Debt Mutual Funds are only investment based where you can invest in government bonds, and treasury bills.

While ULIPs plans are an investment-cum-insurance option, as on the one hand, you pay a premium for life insurance cover, while on the other hand, you invest in funds of your choice. This way, you are not only getting protection but additionally securing your future financially.

  1. Tax Benefits

ULIP plans under Section 80(C), and Section 10 (10D) provides tax benefits for premiums paid. Under Section 80 (C), the premium paid towards the plan up to Rs.1.5 lacs is tax-free, and Under Section 10 (10D), the sum assured paid to the nominee would also be tax-free. LTCG has an impact on ULIP plans; hence, it is tax-free.

While Debt Mutual Funds provide you with no tax benefits, and 20.8 % tax is applicable on LTCG of Debt Mutual Funds.

  1. Returns

Debt Mutual Funds give you steady but constant returns.

While ULIPs plans offer moderate to high returns, i.e., Net Asset Value (NAV), depending on the performance of the market and the type of investment funds. 

  1. Flexibility

Based on the ongoing market fluctuation, going for a flexible investment option is investors’ top priority. ULIPs plans help to switch funds from equity to debts or vice-versa. ULIPs plans allow you to change the ratio of your invested amount, without any additional expense.

While Debt Mutual Funds are not that flexible.

  1. Lock-in Period

Debt Mutual Funds can be a short-term or long-term investment, depending on your choice. These funds have no lock-in period and are a highly liquid investment as you can withdraw money whenever you wish to.

While ULIPs plans are not so flexible but arean excellent option for long-term investment, you need to wait for the completion of 5 years of lock-in period to get the returns.

Post the introduction of LTCG in 2018; investors are more going for ULIPs plans for investment as it has the following benefits:

The Multi-Functioning Plan- ULIPs

Indeed, ULIP plans are multifunctional as they provide both investment and insurance options for you. Where Investment part helps you to build your wealth over time, while the insurance part helps your family financially in case of any eventualities.

ULIPs plansfrom reputable insurance companies such as Max Life Insurance provide you with an insurance-cum-investment option. As a part of the premium paid is deducted in the form of mortality charge, which gives life cover while the remaining premium is invested in equity or debt funds.