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Should you invest in ULIPs to save for your child’s future?


I need to save for my 2-year-old daughter’s training. My financial institution’s consultant has recommended a youngsters’s Ulip, which is able to give me the triple advantages of tax deduction, tax-free maturity and life cowl. The premium will likely be about 45,000. Do you suppose I ought to make investments on this plan?

Identify withheld 

(Question answered by Raj Khosla, managing director, MyMoneyMantra.com)

You’ll definitely get triple advantages on this funding. Nevertheless, there are particular options you have to be conscious of. For one, the life insurance coverage cowl supplied by a Ulip is just 10 instances the annual premium, which suggests you’re going to get a canopy of 4.5 lakh. This might not be enough for your loved ones. Life cowl needs to be at the very least 8-10 instances your annual revenue. It’s higher to purchase a time period insurance coverage plan, which may present a big insurance coverage cowl at a comparatively low worth.

The premium you’ll pay is eligible for tax deduction underneath Part 80C. However different funding choices will also be used for this goal. As an example, ELSS funds have given superb returns until now and are a greater funding possibility than a Ulip. ELSS funds have a brief lock in interval of three years.

It may be argued that positive factors of greater than 1 lakh in a 12 months from ELSS funds are taxable, whereas the Ulip corpus will likely be tax free on maturity underneath Sec 10(10d). However this rule was amended in 2021. If the mixed annual premium of Ulips purchased after 1 February 2021 exceeds 2.5 lakh, positive factors from the Ulips will likely be taxed like fairness funds.

Additionally take into account that ELSS funds don’t bind you right into a multi-year investing dedication. If an ELSS fund doesn’t do effectively, you may cease your SIPs and never purchase that fund once more. In a Ulip, an investor is caught with the identical funds and fund managers for the complete time period of the plan.

One constructive function of a Ulip is that the policyholder is allowed to make adjustments within the asset combine. Not like an ELSS the place investments can’t be touched until the lock-in interval is over, Ulip traders can change from an fairness fund to a debt fund or liquid fund and vice versa. What’s extra, the positive factors constructed from such switching should not taxable.

(Ship queries and views to mintmoney@livemint.com.)

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