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In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/492
When it comes to choosing between ULIP vs FD, both have their own benefits. Fixed Deposits (FDs) are a safe option with guaranteed returns, while Unit Linked Insurance Plans (ULIPs) offer market-linked growth along with life insurance coverage. While FDs provide stability, ULIPs have the potential for higher returns and tax benefits. With changing interest rates, many are now comparing ULIP vs FDs to find the best investment option for their financial goals.
Let us start by comparing FD vs ULIP to understand which one offers better and what you should opt for.
| Feature | FD | ULIP |
|---|---|---|
| Tax Benefits | Tax exemption only on the investment amount; returns are taxable | Tax deductions on premiums and tax-free maturity amount (subject to conditions) |
| Effect of Inflation | Interest rates can decrease due to inflation | Debt-based ULIPs may offer better returns as bond rates increase |
| Life Cover | No life insurance coverage | Provides life insurance along with investment growth |
| Flexibility | Not flexible; money stays locked in for the chosen tenure | Allows switching between equity and debt funds based on market conditions |
| Returns | Fixed and guaranteed interest rate | Returns depend on market performance |
Now that you know the basic differences of ULIP vs FD, the question arises “Is ULIP better than FD?” To answer this question, you need to read more about ULIPs and make a decision for yourself. Let us deep dive.
ULIP investment is a plan that offers both insurance and investment benefits. As a result, consumers are continually looking for the finest ULIP plans. The payment is divided into two parts in this situation: one is used to pay for life assurance, and the other is used to invest in money market goods. Even the returns from a debt fund in a unit-linked insurance policy are tax-free in the investor’s hands, making it unique among market-related investments.
ULIP plans offer several features that make them an attractive choice for many investors. If you are also stuck in the ULIP vs fixed deposit debate, these features will provide you with clarity on why ULIPs may be better than FDs:
One of the advantages of ULIPs is that you have the flexibility to switch between funds based on market circumstances and performances. This helps you take advantage of growth opportunities and manage risks better. On the other hand, FDs come with fixed interest rates where your returns stay the same despite market fluctuations.
A distinguishing characteristic of ULIPs is that they offer both life insurance and investment benefits. This feature is not offered in any other investing tool. ULIPs must also contain life insurance worth nearly three times the annual cost, according to IRDAI regulations. This is a key advantage over fixed deposits, which do not provide life cover.
Since ULIPs have a five-year lock-in term, they are the best option for establishing a consistent investment habit. The premiums are paid monthly or annually in one large payment throughout the lock-in period, which is normally defined by the policy’s award date.
Section 80C of the Income Tax Act allows for tax deductions on ULIP investments. On 80C investments, an investor can get up to ₹150,000 per year. Similarly, the earnings you get after your ULIP insurance are tax-free under Section 10D of the Income Tax Act. Furthermore, the cash received by the beneficiary in the event of the insured’s death is classified as tax-free under Section 10 (10D) of the IT Act.
When it comes to ULIP vs FD, the right choice depends on your financial goals. FDs are great for those who prefer safety and guaranteed returns, but they come with limited flexibility and lower growth potential. ULIPs, on the other hand, offer the dual benefit of life insurance and investment, giving you the opportunity to grow your wealth while securing your family’s future.
Additionally, ULIPs provide tax benefits, flexibility in fund selection, and better long-term returns compared to FDs. If you are looking for a smarter way to invest while also ensuring financial protection for your loved ones, ULIPs may be the better choice. Just make sure to choose a ULIP plan that aligns with your risk appetite and investment horizon!
1
A ULIP (Unit Linked Insurance Plan) is an investment-cum-insurance plan where your money is invested in market-linked funds, while an FD (Fixed Deposit) is a savings option that provides a fixed interest rate. ULIPs offer higher return potential but involve market risks, whereas FDs provide guaranteed returns.
2
ULIPs generally offer better returns as they invest in equity and debt funds, allowing your money to grow over time. In contrast, FDs provide fixed returns, which are lower but secure, regardless of market conditions.
3
Yes, ULIPs carry some risk because they are linked to market performance, but they also offer higher return potential. FDs are risk-free as they provide fixed returns, making them a safer but less rewarding option.
4
ULIP premiums and maturity benefits are tax-exempt under Sections 80C and 10(10D) of the Income Tax Act. However, FD interest is taxable based on your income tax slab, reducing your net earnings.
5
For long-term wealth creation, ULIPs are better because they allow your money to grow through equity and debt investments. FDs offer stability but lower returns, making them ideal for short-term savings rather than wealth accumulation.
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.
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
In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/521
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
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