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ULIP V/s FD


ULIPs are defined as Unit Linked Insurance Plan that involves some investment whose returns come with the benefit of insurance. They give returns similar to a mutual fund but with the benefits of insurance. From the premium the investor pays, some amounts go towards insurance while the balance is used for investments.

Perks of ULIP

ULIP which also is long term has the potential to give better returns than any other insurance product due to its equity advantage. The ULIP fund managers invest the premium paid by the policy holder in various asset classes and these being tax saving funds, the returns have been reasonably good in double digits. The maturity amounts are tax free for the investor, thus making ULIPs an attractive investment.

Both ULIP and Fixed Deposit (FD)s involve investment but with some differences.

Fixed Deposit

A fixed Deposit involves a certain sum of money deposited with a bank for a fixed tenure at a fixed rate of interest. The key elements to note are the predetermined aspect of the tenure, interest rate as well as the onetime investment.The returns are guaranteed but there is a tax on the final amount based on the interest earned as well as the age of the depositor.It is a safe investment unless a badly run bank is superseded by the RBI, and one can get loans up to 90% of the sum invested.

FDs for most part range from a few days/months to a maximum of ten years, with the interest rate lower based on the longer tenure of the deposit. In ULIP, the investment is for a minimum of 5 years, reaching up to a life term, with returns better based on longer tenure. While it is normally a one-time investment for each FD account, in ULIP, the investment amount can vary based on age, gender, premium term as well as duration. While FD indicates a clear, ensured amount as payable at the end of the tenure, there are no assured returns in ULIP though with good and astute investment in the market, returns can be very good, far beyond that promised by FDs.

Benefits of ULIP and FD compared

There is no death benefit in FD except an easy transfer of maturity amounts to a nominee while ULIP with an insurance cover, gets the benefit of life cover for the deceased. FDs are free of charge and a fixed return is assured as per the term and interest rate of the FD. ULIPs on the contrary, have hidden charges like premium allocation charges, fund management charges and others that may be decreed by the authorities. ULIPs also have a minimum lock in for 5 years and the monies cannot be withdrawn prior to that while FDS can be encashed any time after the contract, with some penalty being loss of interest though the original sum invested remains unchanged.

Resurgence of ULIP

ULIPs which logically offer the best combination of investment and insurance and were popular once, lost out once banks started levying heavy charges till IRDA capped the charges. ULIPS offer various options to move from one investment opportunity to others based on market conditions. Of late, insurance agents are pushing ULIPplans, with discounts and sell the policies at very low rates, making ULIP attractive for the investor.

In ULIP, the life cover is the differentiating factor, with IRDA prescribing that ULIPs must provide a life cover of minimum ten times the annual premium.

In short while FDs are most secure and low risk investment, ULIPs offer higher returns although a little riskier.
ULIP V/s FD ULIP V/s FD Reviewed by RAWAT on 2:13 AM Rating: 5