ULIPs – Unit Linked Insurance Plans – have been in the decade of 2000 to 2010, the most mis-sold product and in the past decade the most blamed or confused product. Thanks to the poor miselling in the 2000’s ULIPs have got a very bad name.
The case for ULIPs in this decade is mainly on the point of getting tax free returns. This is of course subject to changes in the tax provisions by the Central Government. This is one of the few products that got untouched by re-introduction of tax on sale of equity held with long term capital gain.
While tax is one part, and usually not the most important part of someone’s financial profile, this tax free return is now being pushed by several salesmen on the ground to once again get the sales of ULIPs rolling. And in a way that catches the emotional cords of the investor – Children’s future.
Our recommendation is that ULIPs are not a good investment to save for a child’s future. Because ULIP promises monetary returns in exchange for your life’s worth, which is never a good idea.
Also, ULIPs are long term (15+ years) products and needs to be looked at as per the risk profile of a customer. Let us understand what a child’s future may be. If you have children, it is not that you need to mandatorily save for the 20th year from now. You will constantly need some amount very year / periodically, as well “save” for higher education.
Hence, you may want to have 2 mutual fund buckets – equity and debt investments – one targeting for short term requirements and the other for higher education.
If you have enough funds, and you are a conservative investor – then ULIPs make sense – I hope you get it – ie in ULIPs do not expect fantastic returns. It may just be beating the fixed deposits, but you need to retain it for the entire duration. Do not buy and then regret seeing immediate returns and then post in Facebook pages as “what should I do?”.
Additionally, having a ULIP does not erase the need for Term Life Insurance. That is very important to protect your children’s future.
Smrutirekha Bhoi