Home > Money > Question
Need Expert Advice?Our Gurus Can Help

Neha from Thane (35-year-old, married with a 7-year-old son) asks: Term insurance or ULIP for savings?

Moneywize

Moneywize   |174 Answers  |Ask -

Financial Planner - Answered on Sep 21, 2024

MoneyWize helps you make smart investment choices.... more
Asked by Anonymous - Sep 20, 2024Hindi
Listen
Money

I’m Neha from Thane. I’m 35, married with one son aged 7. I have a term insurance policy for Rs 1 crore. Should I also consider a ULIP for additional savings, or is continuing with mutual funds a better option?

Ans: Hi Neha! Considering that you already have a term insurance policy for Rs 1 crore, it's great that your family is covered in case of unforeseen events. When deciding between ULIPs (Unit Linked Insurance Plans) and mutual funds for savings and investment, here are some key points to consider:

ULIP vs Mutual Funds:

1. Cost and Charges:

ULIPs often have higher charges, such as premium allocation charges, mortality charges, and fund management fees. Mutual funds, on the other hand, usually have lower expense ratios, especially if you are investing in direct plans.

2. Flexibility:

Mutual funds offer more flexibility in terms of choosing different fund categories (large-cap, mid-cap, small-cap, debt, etc.), switching between funds, and liquidity.

ULIPs typically lock in your money for five years and come with restrictions on switching funds.

3. Investment Returns:

Mutual funds tend to offer more transparency in terms of returns and performance as they are pure investment vehicles. ULIPs, being a combination of insurance and investment, may offer lower returns compared to dedicated mutual funds.

4. Tax Benefits:

ULIPs offer tax benefits under Section 80C of the Income Tax Act, just like ELSS (Equity Linked Savings Scheme) mutual funds. However, after the budget of 2021, the tax-free advantage for ULIPs is limited if the annual premium exceeds Rs 2.5 lakh.

5. Purpose:

ULIPs mix insurance and investment, but it’s generally recommended to keep insurance and investments separate for better clarity and optimisation. Term insurance covers risk, while mutual funds focus purely on growing your wealth.

6. Recommendation:

Since you already have a good term insurance plan, it would be more beneficial to continue with or increase your investment in mutual funds. Mutual funds will provide better flexibility, potential returns, and lower costs in the long run compared to ULIPs. You can choose funds based on your risk profile and financial goals.
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
Money

You may like to see similar questions and answers below

Latest Questions
T S Khurana

T S Khurana   |197 Answers  |Ask -

Tax Expert - Answered on Nov 23, 2024

Asked by Anonymous - May 11, 2024Hindi
Listen
Money
Can you please suggest on capital gains as per Indian taxation laws arising in the below two queries : 1) property purchased with joint ownership, me and my wife’s name in 2015 at a cost of 64,80,000, housing improvements done for the cost of 1000000 and brokerages of 200000 paid and sold the same property at 10000000 in Dec 2023? 2) 87% of the proceeds got from the deal i.e 8700000, have been reinvested to pay 25% amount in purchasing another joint ownership property in Dec 2023, 3) I have invested in another under construction property in Nov 2023 by taking housing loan, which is on me and my wife’s name worth 1.4 cr, here the primary applicant is me only while wife is just made a Co applicant in the builder buyer agreement and also on the housing loan . So what are the LTCG tax liabilities arising from the above 3 scenarios for FY 2023-2024 and FY 2024-2025. I intend to sale off the property acquired in (2) by Dec 2024 and use that proceeds to close the housing loan for the property acquired in (3), will this sale of property be inviting any tax liabilities if the complete proceeds received from the sale of the property in (2) would be utilised to close the housing loan taken in Nov 2023 for the property in (3) ? Since in FY 23-24, I would be claiming the LTCG from the sale proceeds of 1) invested in the purchase of property in 2), and I intend to sale off this property in Dec 2024, will the LTCG claim be forfeited on the property sale in (1), should I hold this property at least for further 1 year so that sale of this property in 2) will not invite STCG?
Ans: (A). Let's first talk about F/Y 2023-24 :
You jointly sold a Property during the year for Rs.76.80 lakhs (64.80+10.00+2.00), & sold the same for Rs.100.00 lakhs.
You have jointly also purchased Property No.3 (I suppose it is Residential only), for Rs.140.00 lakhs.
You should avail exemption u/s-54 & file your ITR accordingly. Please disclose all details about sale & purchase in your ITR.
02. Now coming to the F/Y 2024-25 :
You intend to Sell Property No.2, which was acquired in 2023-24. Any Gain on Sale of it would be Short Term capital Gains & taxed accordingly.
Alternatively, you may hold this sale of property no.2 (for 2 years from its purchase) & avoid STCG
You are free to utilize the sale proceeds in a way you like, including paying off your housing Loan.
Please note to avail exemption u/s 54 only from investment in property no.3 & not 2.
Most welcome for any further clarifications. Thanks.

...Read more

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

Close  

You haven't logged in yet. To ask a question, Please Log in below
Login

A verification OTP will be sent to this
Mobile Number / Email

Enter OTP
A 6 digit code has been sent to

Resend OTP in120seconds

Dear User, You have not registered yet. Please register by filling the fields below to get expert answers from our Gurus
Sign up

By signing up, you agree to our
Terms & Conditions and Privacy Policy

Already have an account?

Enter OTP
A 6 digit code has been sent to Mobile

Resend OTP in120seconds

x