Skip to main content

Unit Linked Insurance Plan (ULIP) - Tax Saving

Download Tax Saving Mutual Fund Application Forms

Invest In Tax Saving Mutual Funds Online

Buy Gold Mutual Funds

Leave a missed Call on

94 8300 8300

 

Adam Smith said, "All money is a matter of belief." He could have said the same for Ulips, which for some people is insurance, while for some it is investment. The debate never seems to end.

Ulips might have caught your fancy for all the noise around them over the past few years. These are hybrid products that mix life insurance and investments. Like any other life insurance product, these offer life cover along with investment. However, it is left to the policyholder to make the investment choice from the available fund option, thereby transferring the risk of investment to the policyholder. Though, these policies can be more profitable than a traditional insurance policy; it also has a higher risk.

Investment Objective and Risks
The main objective of these policies is to combine risk cover and investments. The choice of fund options available can be used as per one's risk profile to make the most of investments with a fixed insurance cover.

Capital Protection
The sum assured in a life insurance policy is guaranteed as per the terms of the policy as long as the premiums are paid and the policy is in force.

Inflation Protection
Life insurance is not inflation protected because insurance is a fixed cover-fixed tenure product, wherein the sum assured is fixed. However, the equity fund option has all the potential to beat inflation and create wealth over the long-term. But it does not guarantee inflation beating returns.

Guarantees
The sum assured is guaranteed and the premium is fixed for the tenure of the policy. There are a few with profit policies that guarantee a minimum return, which varies across insurers and policies.

Liquidity
Ulips are liquid only after the lock-in period of five years. This is achieved by redeeming units in which the premiums are invested in. One can also make premature withdrawal or surrender the policy at a loss.



• Loans are available against the policy depending on the policy type, the years it has been in force, its sum assured or the fund value at the time of seeking loan.
• The maximum loan amount that can be approved by insurers shall not exceed 40% of the net asset value in case the Ulip fund is predominantly equity-oriented.
• The maximum loan amount that can be approved by insurers shall not exceed 50% of the net asset value in case the Ulip fund is predominantly debt-oriented.

Credit Rating
Life insurance policies do not have any credit ratings.

Exit Option
One can surrender or terminate the policy at a financial loss.

• The insurer will credit and refund the proceeds of the discontinued policy to the policyholder only on completion of the lock-in period.
• The proceeds of the discontinued policy for the purpose of refund to the policyholder shall mean the fund value on the date of discontinuance plus interest computed at a minimum rate of 3.5 per cent per annum.

Other Risks
The risk of premiums going down after you have bought a policy exists and so does the risk of premiums going up. There is also the risk of new policies emerging that suit your financial requirements better.

Tax Implications
Premiums paid towards a life insurance policy qualify for tax deductions under Section 80C with a limit of `1 lakh in a financial year.

• If the premium paid exceeds 20 per cent of the sum assured of the life insurance policy, the amount eligible for tax deduction under section 80C will be limited to 20 per cent of the sum assured.
• The proceeds from the maturity or claims on a life insurance policy are exempt under Section 10(10D).

When Buying the Policy
Unlike traditional plans where a sum assured decides the premium, Ulips work the other way around wherein the premium that one pays dictates the extent of cover that is offered. As policies can be of regular premiums or a one-time single premium, the sum assured varies accordingly.

At the time of Ulip sales, the benefit illustration irrespective of the fund schemes that the policyholder selects is based on 6 per cent and 10 per cent return. The policy types are similar to traditional forms such as endowment, whole life and term.
• The commission that agents or brokers receive has to be disclosed as part of the benefit illustration.
• The net yield indicated should include all policy related charges for mortality, morbidity, riders and any investment guarantees.

Points to Ponder
• 5-year lock-in period, including top up premiums
• Any additional premiums or top-ups will be treated as a single premium with an appropriate sum assured
• The grace period for payment of premium for all Ulip is fixed as 15 days from the due date
• Overall charges in Ulips will be evenly distributed during the lock-in period
• Life or health cover could be offered along with the pension or annuity products as riders
• In case of pension policies, no partial withdrawal is allowed during the accumulation phase. The policyholder will have the option to commute up to a maximum of one third of the accumulated value as lump sum at the time of vesting
• In the case of surrender of pension policies, only a maximum of one third of the surrender value can be commuted after the lock-in period, with the remaining amount mandatorily utilised to purchase an annuity contract

• All Ulip-oriented pension plans currently offer a minimum guaranteed return of 4.5 per cent per annum, or at rate as specified by IRDA (Insurance Regulatory and Development Authority) from time to time, payable on the maturity date. IRDA is planning to move to a capital protection regime.

Types of Ulips
There are broadly three types of Ulips that are based on the benefits they offer and are classified as Type I, Type II and Pension Ulips (ULPPs).



• Type I Ulip: In this plan on death of the policyholder the policy pays the higher of the sum assured or the unit value of the investment to nominees.
• Type II Ulip: In these plans on death of the policyholder the policy pays out both the sum assured and the net asset value of the fund the policyholder invested in to nominees. Premiums on such plans are higher than those on Type I Ulips and as investments come at a high level of risk, you shouldn't abandon your policy in the early years.
• Pension Ulips: This type of Ulip combines life insurance and retirement income. The part of this insurance that relates to life coverage is similar to Types I and II: Upon death, the insurer pays the nominees the death benefit; if you live to retirement age, this pension plan pay back the premiums and accrued returns to you in full to buy an annuity.

Caps on Surrender charges
IRDA has stipulated the maximum difference between gross and net yields at maturity based on the policy term as tabulated below.



Further, the insurance regulator stipulates a cap on the surrender charges that insurers can levy on discontinued policies. The charges are to be calculated as below:



Tips and Strategies
• Use the free fund switch option between equity and debt funds to maximise returns.
• Be exposed highly to equity in the initial years and taper towards debt as the policy maturity year approaches.
• Buy policies online to cut on intermediary costs and save on premiums without compromising on extent of cover.
• Use riders to enhance the scope of cover.

 

 

For further information on the topic you can CONTACT Prajna Capital on 94 8300 8300 by leaving a missed call.

 

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at

PrajnaCapital [at] Gmail [dot] Com

 

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

 

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

---------------------------------------------

 

Best Performing Mutual Funds

    1. Largecap Funds             Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Franklin India Bluechip
      4. ICICI Prudential Top 100 Fund

B. Large and Midcap Funds         Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
      4. Birla Sun Life Front Line Equity Fund
      5. Franklin India Prima

C. Mid and SmallCap Funds          Invest Online

      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
      5. Birla Sun Life Dividend Yield Plus
      6. SBI Emerging Businesses Fund
      7. HDFC Mid-Cap Opportunities Fund
      8. ICICI Prudential Discovery Fund

D. Small and MicroCap Funds   Invest Online

      1. DSP BlackRock MicroCap Fund

2.       Franklin India Smaller Companies

E. Sector Funds          Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
      3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds      Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

      1. DSP BlackRock Tax Saver Fund
      2. Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds        Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund
      4. Birla Sun Life Gold

H. International funds         Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF

Popular posts from this blog

Mutual Fund Review: Taurus Tax Shield

    Taurus Tax Shield has seen a turnaround in performance since 2007, but still remains a volatile offering… The fund has seen a turnaround in its performance since 2007 and has delivered impressively during market rallies since then. The portfolio is also more diversified. It contained its downfall to an average level in 2008 but is still one of the most volatile offerings in this category. Bold investors can look at this fund.   Strategy The fund manager invests across the market capitalisation and sectors. The selection of stocks is made on the basis of long-term business prospects and value creation. Fund Insight Launched in March 1996, the fund was a laggard with just two annual outperformances. Concentrated stock bets and high exposure to mid and small caps led to it being hit harder during market downturns. The number of stocks in the portfolio never exceeded 20 and it was not rare to see the top 5 holdings account for around 60 per cent of the portfolio. After b...
Read more

AXIS Long Term Equity Fund - The Best Tax Saver Fund for 2016

  AXIS Long Term Equity Fund - Invest Online   History:   The open ended mutual fund was launched on December 21 in the year 2009. It is benchmarked against BSE 200 and managed by the fund manager JINESH GOPANI. Initially the scheme was called as Axis tax saver fund but later it was renamed as Axis long term equity fund with effect from September 2, 2011. Nature of investment: As far as asset allocation is concerned, 97.52% of the stocks are equity and 0.02% is debt based. The primary focus of the fund is to invest in diversified equity stocks that have higher growth potential. Total asset size of the fund is in the tune of 4,996 CRORE as of June 30, 2015. Performance: The performance of the fund for one year, 3 years and 5 years are 23.6%, 29.9% and 19.1 respectively which are far greater than 6.4%, 14% and 5.6% benchmark figures. It has also preformed fairly well against SBI magnum Tax Gain (G) and HDFC tax saver (G). The growth comparison is enumerated below;                        ...
Read more

10 year NSC launched, all set to give 8.7 per cent

Invest in Mutual Funds Online Download Mutual Fund Application Forms THE government introduced a 10-year National Savings Certificate ( NSC ), which will earn an interest rate of 8.7 per cent per annum. The notification for the launch of the new savings instrument, 10-year National Savings Certificate (IX-Issue), 2011, has been issued, an official statement said. The scheme will come into effect from December 1, it added. Investments in NSC will earn interest at the rate of 8.7 per cent compounded semi-annually, it said, adding that on an investment of Rs 100, the depositor will get Rs 234.35 on maturity of the NSC. There is no upper limit for investment in the certificate, it added. The new scheme will give better returns along with tax benefit to savers. At present, the maturity period of NSC is six years and it qualifies for tax relief for investment up to Rs 1,00,000 under Section 80C. The decision to raise the maturity period of NSC has been taken on the b...
Read more

Health insurance guide - Part I

Insurance, by definition, is morbid. What if I die suddenly? What if my home caught fire? What if I had to undergo expensive medical treatment? What if something that I thought happened only to others befell me? Insurers, who work with large samples, calculate the probability of such an event and, hence, the possibility of them having to pay out a sum of money to mitigate, to the extent possible, the effects of that disaster. However, the possibility of you undergoing some kind of expensive medical treatment during your lifetime is far more likely than you dying suddenly or your house burning down. Given that costs at private healthcare facilities, where you are most likely to land up, is high, and, doubling every four years 10 months or so, the rest of your money life could easily go out of whack if you had to incur such expenses. Just 12 per cent of India's population is covered with some sort of health insurance. Pared to the bone, for a comparatively small price, health insu...
Read more

IDFC Classic Equity Fund

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   IDFC Classic Equity Fund IDFC Classic Equity is a large-cap equity fund which currently has assets under management worth Rs. 158.52 crore. It was launched in August 2005. The fund is benchmarked against the BSE-200 Index. Performance YTD 1-Year 3-Year 5-Year Since Inception IDFC Classic Equity 0.93 26.61 6.30 1.01 11.65 BSE 200 1.52 17.31 6.00 1.99 12.98 All figures in % as on January 31, 2013; Returns above one-year in CAGR terms ...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now