InvestorQ : Considering the present market conditions, can I replace my fixed income (debt fund) portfolio with Unit Linked Insurance Plans (ULIPS)?
Anusha Savla made post

Considering the present market conditions, can I replace my fixed income (debt fund) portfolio with Unit Linked Insurance Plans (ULIPS)?

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Ayushi Kampani answered.
4 months ago


Well, considering the present market conditions investors are worried about their debt fund investments. It is obvious that they would be, as their hard-earned money is at stake and after the case of Franklin Templeton the investors are worried more. Therefore, they are looking for options that could help them to minimize their risk and the most common idea circulating around the market is to replace the debt funds with ULIPs. The investors are attracted to develop a portfolio consisting of ULIPs because:

  • The most important reason is less risk, ULIPs are safe (according to investors)
  • Investors can do tax-free switches between various funds.
  • Maturity proceeds from ULIPs are tax-free.
ULIPs have undoubtedly some benefits over debt funds. However, it does not make sense to replace debt funds with the same. Here’s why:

1) ULIP bonds are safer is a myth, as just like any other investment it has risk associated with it, and just like any other investment ULIP fund manager invests money in the same market where all other investments are made. So, we have absolutely no evidence that ULIP managers are better than mutual fund managers.

2) Even though ULIPs are tax-free we cannot really say that they are better as various charges involved under ULIPs. This simply means that the investor neither gets the benefit of ULIPs being tax-free nor they get better returns as most of it is eaten up by the high costs.

3) The tax-free maturity receipts are not always tax-free. For such units to be tax-free, the sum assured must be at least 10 times the annual premium. Therefore, it is unlikely that a single premium ULIP will be tax-free.

4) The expense ratio is higher for ULIPs. Insurance companies generally charge 1.35% p.a. for all ULIP equity funds, which indeed is quite high.

5) Mutual funds are highly standardized as AMCs are required to disclose portfolios of every scheme monthly and the AUM for each scheme is available monthly. However, in case of ULIPs IRDA requires only the latest information which could be either monthly, annually, weekly, who knows?

I understand that the mutual fund industry has its own ups and downs but your money is somewhat safer there, which is not the case with ULIPs. ULIPs comply with much weaker regulatory and disclosure standards. Therefore, you cannot expect it to be safe.


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biswajit jena answered.
4 months ago


A Unit Link Insurance Plan ( ULIP) is an investment product that ... of the Income-tax Act. This is a dual benefit that you can claim ... Things to consider as an investor.