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Is ULIP Better Than FD?

In this article, we will compare ULIP investments and FDs in-depth to help you decide which is the better option for you according to your requirements. Visit now to know!

  • 2,176 Views | Updated on: Mar 18, 2024

An ongoing debate over investing instruments constantly raises the question of what is better between ULIP and FD in terms of potential investment returns.

While this is a very subjective topic due to a variety of aspects such as financial goals, budgets, and much more, many people think that when you compare ULIP plans to FD plans, the former appears to provide greater returns.

In this article, we will compare ULIP investments and FDs in-depth to help you decide which is the better option for you according to your requirements.

What is a Fixed Deposit (FD)?

A fixed deposit is a financial product offered by banks or non-bank financial companies (NBFCs) that pays a greater interest rate to clients than a conventional savings account till the maturity period.

Features of an FD

  • Lock-In Period

There is no lock-in period, but the bank may levy a fee if the money is taken well before the deadline, resulting in a loss of interest.

Features of an FD

  • Flexibility

Fixed deposits do not provide you with the freedom to allocate your earnings as you see fit.

Features of an FD

  • Life Coverage & Death Benefit

The majority of FDs do not include life insurance coverage, hence there are no death benefits offered.

Features of an FD

  • FD Taxation Benefits

Only the amount invested is free from taxes. The income returns from an FD is entirely liable for tax deductions provided it crosses the set slab.

What is a ULIP Plan?

ULIP investment provides both insurance and investing advantages. Thus, people are always on the hunt for the best ULIP plan. In this situation, the payment is split into two parts: one is used to provide life insurance premiums, and the other is used to invest in money market products. The earnings from even a debt fund in a unit-linked insurance policy are tax-free in the hands of the investor, setting it apart from all other market-related investments.

Features of a ULIP

  • Lock-In Period

ULIP comes with a five-year lock-in period. The upside to this is that it helps in building investment and savings habits. Plus, the returns you get after 5 years are worth the wait, which makes you believe that money takes time to grow. The lock-in period is usually specified by the policy’s grant date, and the premium must be paid monthly or yearly.

  • Flexibility

One of the ULIP benefits is that it provides you with the freedom to adjust the fund’s distribution as per the current market conditions. So, let’s say you are a risk-taker, you can invest in equity funds. At the same time, if you realize that you need an emergency fund, you can switch to a debt fund.

  • Coverage for Life & Death Benefit

ULIPs provide both life insurance and investing rewards as one of its defining features. This characteristic is not seen in any other investment tool. According to IRDAI requirements, ULIPs must include life insurance worth at least three times the yearly cost.

  • ULIP Benefits in Taxation

ULIP investment is subject to tax deductions under Section 80C of the Income Tax Act. Annually, an investor can receive benefits up to ₹1,50,000 under 80C investments. Likewise, under Section 10D of the Income Tax Act, the profits you get at the maturity of your ULIP insurance are tax-free. Furthermore, under Section 10 (10D) of the act, the death benefit received by the beneficiary in case of the policyholder’s death is also tax-free.

To sum up, we may infer from this article that ULIPs are a preferable investment alternative to FDs. Thus, if you are looking for the best ULIP plan, it is recommended that you undertake the necessary research to compare ULIP plans and opt for the one that best meets your needs.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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