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5 Reasons Why ULIPs Are Superior to Mutual Funds

With all the talk and heavy marketing around mutual funds, it is easy to get carried away and begin investing in them. However, there is a superior wealth-making instrument in the market, namely Unit Linked Insurance Plans (ULIPs), which do much more and have fewer hidden costs.

This piece will not only go into the advantages you receive when you invest in ULIPs but will also demonstrate how ULIPs eliminate all the disadvantages of mutual funds while giving you the same returns.

Lower Charges

While most Mutual Funds attract a Fund Management Charge (FMC) of 2.5% of total assets, for ULIPs this charge is capped at 1.35%. For example, after 30 years of putting your hard-earned money into mutual funds and building a corpus of 2 crores, you will end up paying a sum of 5 lakhs as FMC. This is nearly a year’s worth of earnings when you began this mutual fund. For ULIPs, this is close to half.

No Tax Burden

With Long-Term Capital Gains (LTCG) tax of 10% being applicable from Jan 2018 on all dividends in equity and equity-oriented funds, those who have invested in mutual funds have to pay a high cost when they want to withdraw their investments. Taking the example from earlier, on a corpus of 2 crores, the tax burden will be a whopping 20 lakhs.

Gains made in ULIPs are completely tax-free.

Same Returns as Mutual Funds

Since ULIPs and Mutual Funds operate in the same markets and give the customer the choice of instruments, risk exposure, and so on, they are exposed to the exact same risks and make similar gains.

Hassle-free Movement between Debt and Equity Instruments

In Mutual Funds, when the customer chooses to move his funds between debt and equity instruments, it attracts capital gains tax. These could be short-term or long-term taxes. In ULIPs, there are no capital gains taxes when you move funds between debt and equity instruments.

Added Life Cover

In addition to all the advantages mentioned, ULIPs also provide life cover. A large sum of money will protect your loved ones in the event of your untimely demise if you are actively investing in a ULIP.


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