If the tenure is over 15 years and the investor is proactive in switching between debt and equity, Ulips can be a rewarding option. They offer insurance, investment and tax-free returns.
15 per cent is the tax payable on short-term gains from stocks. Short-term profits from debt funds are added to income and taxed at applicable rates. Ulip income is tax-free.
3 years is the lock-in period for equitylinked savings schemes from mutual funds.
Ulip investors are free to switch their corpus from one option to another.
Proactive Ulip investors can take calculated bets on the stock market without incurring any tax liability. An investor could have switched out of the equity option when the Nifty crossed 3,100 in early January and then re-entered when the markets fell in early March, only to switch out once again in mid-April.
In a mutual fund, the investor would have had to pay tax every time he made a short-term capital gain from switching in and out of an option. Switching from one option to another in a Ulip is not only tax-efficient, but also incurs no charge for four-six switches in a year. The procedure is very simple. Just deposit a signed transaction slip to the insurance company for effecting the switch. Most insurance companies also offer policyholders the option to manage their accounts online.
Ulips also provide life insurance cover to investors. An investor in his 30s can get a life cover of 40-50 times the annual premium.
However, Ulips are not such a great option for people above 50 years because the life insurance cover offered is only 5-10 times the annual premium.