Ways In Which ULIPs Are Different Than Fixed Deposits

India's economy is based on saving. We've been instructed to save money for the future since we were children. When most individuals think of saving, the first investment option that springs to mind are a 'Fixed Deposit.' Indians also invest a considerable portion of their salary in life insurance to ensure a secure future. A ULIP, or Unit Linked Insurance Plan, is an intriguing plan that combines life insurance benefits with regular investment in financial markets.

For Indians, they've traditionally been the "keep it and forget it" savings option, as they're supposed to provide stability and consistency. FDs have been passed down to us as cultural wisdom, and as a result, they are a more commonly known and acceptable financial product.

A fixed deposit is when you put your money in a bank account for a set period of time at a set rate of return. You will receive the amount invested plus compound interest on the principal at maturity. Fixed deposits in India have historically provided 10-12 percent annual returns to investors. However, that era is unlikely to return.

Ways In Which ULIPs Are Different Than Fixed Deposits

Below are ways in which ULIPs are different than Fixed Deposits:

1. Tax Saving

You must pay taxes on the interest you earn on fixed deposits. ULIPs, on the other hand, can help you save money on taxes. The premiums you pay for a ULIP can be deducted from your taxes. A ULIP's maturity amount is likewise tax-free. As a result, ULIPs are a great way to save money on taxes.

As a result, ULIPs are a superior investment option to FDs. Apart from ensuring the safety of your funds and providing life insurance, they also provide you with the opportunity to profit by investing your funds. Because of their adaptability, they are one of the best investments you can make. 

2. Guaranteed Profits

A fixed deposit's rate of return is assured. They also serve as a form of asset protection.

There is no assurance of investment returns. Market volatility has an impact on returns.

3. Charges

There are no such fees for FDs.

Premium allocation charges, administration expenses, and fund management fees are deducted from the investment's returns in ULIPs.

4. Death Benefits

There are no death benefits with fixed deposits.

Because life insurance is included in a ULIP, a sum assured will be paid to the nominee in the event of the policyholder's death.

5. Lock-In Period

There is no lock-in period, but the bank may levy a penalty if the money is withdrawn before the due date, resulting in a loss of interest.

ULIPs have a 5-year lock-in duration.

Conclusion

When comparing Fixed Deposits vs. ULIPs, it's crucial to remember that fixed deposits offer a lower rate of return but are extremely low-risk investments. ULIPs, on the other hand, are market-linked products with high risk and volatility. ULIPs have the potential to outperform fixed deposits due to their market-linked returns. However, no assurance of success may be given.

FDs may be a better alternative for capital preservation with little risk, whilst ULIPs may be a better option for wealth building. As a result, investors must evaluate their risk tolerance and existing portfolio allocation. ULIPs have been chastised in the past for being more expensive than traditional insurance and mutual fund products.

Fixed deposits, on the other hand, have lost their luster as several public sector banks now provide fixed deposit interest rates that do not allow investors to achieve inflation-beating returns over time. 

Also read - Term Insurance V/S ULIP : What Makes More Sense?

Why Are Unit Linked Insurance Plans Popular?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.