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Low-return FDs underperform against ULIPs
For risk-averse investors who want to save on income tax, tax-free bank fixed deposits (FDs) are usually one of the main investment tools. However, the 50-basis point repo rate cut announced by the RBI in Sep 2015 is expected to impact fixed deposit rates across all banks. With SBI announcing cut in deposit rates by 25 basis points (effective from 5th October 2015), more banks are likely to follow suit. Thus, the rate of return from new tax-saving fixed deposits would surely take a beating. This raises the question: is there an investment instrument that can replace tax-free bank deposits and deliver on returns, capital security while offering tax-saving benefits?
- 4.8~ Rated
- 7.7 Crore Registered Consumer
- 50 Partners Insurance Partners
- 4.2 Crore Policies Sold
ULIP Plans
- Plan starting from ₹1,000/month
- Save upto ₹46,800 in Tax under section 80C^
- Zero LTCG Tax¶
- In built life cover
We are rated~
7.7 Crore
Registered Consumer
50
Insurance Partners
4.2 Crore
Policies Sold
Top performing plans with High Returns**
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- Low-return FDs underperform against ULIPs
Top ULIP Funds†
Fund Name
AUM
NAV
Returns (in %)
3 Year
5 Year
10 Year
High Growth Fund
Max Life
AUM:8,482 Cr
8,482 Cr
NAV
119.99
1.59%
Returns
23.95%
Whole Life Mid Cap Equity Fund
Tata AIA
AUM:13,435 Cr
13,435 Cr
NAV
158.69
2.49%
Returns
21.08%
Virtue II
PNB Metlife
AUM:3,532 Cr
3,532 Cr
NAV
77.53
1.12%
Returns
17.59%
Accelerator Mid-Cap Fund II
Bajaj Allianz
AUM:6,452 Cr
6,452 Cr
NAV
86.49
1.27%
Returns
17.79%
Opportunities Fund
HDFC Standard
AUM:40,966 Cr
40,966 Cr
NAV
78.44
1.16%
Returns
15.75%
Fund Name
AUM
NAV
Returns (in %)
3 Year
5 Year
10 Year
Whole Life Aggressive Growth Fund
Canara HSBC Oriental Bank
AUM:869 Cr
869 Cr
NAV
93.59
0.82%
Returns
16.11%
Whole Life Stable Growth Fund
Canara HSBC Oriental Bank
AUM:266 Cr
266 Cr
NAV
61.92
0.32%
Returns
12.53%
Balanced Fund
Canara HSBC Oriental Bank
AUM:380 Cr
380 Cr
NAV
48.06
0.34%
Returns
11.49%
Asset Allocation Fund II
Canara HSBC Oriental Bank
AUM:341 Cr
341 Cr
NAV
31.32
0.18%
Returns
9.45%
Save N Grow Money Fund
Canara HSBC Oriental Bank
AUM:68 Cr
68 Cr
NAV
58.7
0.37%
Returns
8.69%
Fund Name
AUM
NAV
Returns (in %)
3 Year
5 Year
10 Year
Builder
Canara HSBC Oriental Bank
AUM:243 Cr
243 Cr
NAV
89.55
0.06%
Returns
6.87%
Whole Life Income Fund
Canara HSBC Oriental Bank
AUM:802 Cr
802 Cr
NAV
38.31
0.03%
Returns
6.22%
Debt Fund
Canara HSBC Oriental Bank
AUM:482 Cr
482 Cr
NAV
36.29
0.04%
Returns
5.92%
Conservative Fund
Canara HSBC Oriental Bank
AUM:233 Cr
233 Cr
NAV
55.4
0.09%
Returns
7.01%
Protector
Canara HSBC Oriental Bank
AUM:307 Cr
307 Cr
NAV
64.22
0.06%
Returns
6.07%
Disclaimer :
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
ULIPs: An Alternative to Bank FDs
Unit-linked Insurance Plans (ULIPs) give investors the benefit of both investment and insurance under one umbrella. A part of the policy premium is used to provide you with life cover while the rest is used to invest in equity and/or debt markets. Just like mutual funds, you will be allotted units, which will have a net asset value (NAV) assigned to them. These values will determine the rate of returns of a ULIP plan.
How are ULIPs better?
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Higher tax savings: ULIPs are tax friendly as their premiums qualify for tax deduction under Section 80C of the Income Tax Act while the maturity amount is tax free under section 10(10)D. In case of tax saving deposits, only your investment amount would qualify for deduction under Section 80C. The interest earned from such deposits would however be taxable.
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Higher returns: Bond prices tend to go up when interest rates are falling. As more rate cuts are expected from RBI due to decreasing inflation, more capital appreciation can be expected from bonds. Thus it makes more sense to invest in debt-oriented ULIPs, after the recent repo rate cut. You can also opt for equity or balanced ULIP if you have higher risk appetite.
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Life Cover: ULIPs provide life cover while tax saving deposits do not provide any. According to the IRDA guidelines of 2010, ULIPs must provide life cover of at least 10 times of the annualized premium.
The below table shows how debt market and equity ULIPs outperform tax-free fixed deposits (Click here to know more):
| Tax free deposits | ULIP (Debt/Government securities) | ULIP (Equity/Market linked) | |
| Initial investment | Rs 50,000 | Rs 50,000 | Rs 50,000 |
| Interest rate | 8%-8.5% | 7.5–9.5% | 12–24% |
| Value after 5 years | Rs 76,100 | Rs 78,700 | Rs 1,46,000 |
| Tax paid on returns | Rs 7,842 | NIL | NIL |
| Returns after Tax | Rs 68,200 | Rs 78,700 | Rs 1,46,000 |
| Rate of returns after tax | 6.03–6.44% | 7.05–9.5% | 12–24% |
| Life Cover | N.A. | Available | Available |
| Minimum investment tenure | 5 years | 5 years | 5 years |
| Tax saved on investment | Rs. 15,000 | Rs 15,000 | Rs 15,000 |
Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer.
As above, for investor looking to take low risk and looking for better returns could consider ULIPs as a good option.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
*All savings are provided by the insurer as per the IRDAI approved insurance
plan.
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
+Returns Since Inception of LIC Growth Fund
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.
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