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Has LTCG Worked in the Favor of ULIP Plans?

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January 24, 2019

Because of the Long term Capital Gains on equity investments, ULIPs have become more attractive. The investment component in a ULIP works like a mutual fund, but with a different cost structure. As it has a tiny wrap of insurance, it is guided by different income-tax rules. As per section 10 (10D) of the income-tax Act, if the sum assured in a life insurance policy is at least 10 times the annual premium, then proceeds from the policy - maturity or early surrender - are tax free, keep in mind Ulips come with a lock-in of 5 years. Death benefit is tax free. This is a plus for Ulips, in view of the proposed LTCG tax of 10.4% on equity investments through mutual funds.

Unlike mutual funds, where all the costs are packed in one total expense ratio (TER) - which is levied evenly over the years and is reflected in the net asset value (NAV) - costs in Ulips are front-loaded and come under different costs heads. Its premium allocation charge is a straight deduction from the premium you pay. The remaining money is invested and the other costs are deducted from this. Fund management charge, which is capped at 1.35% of the fund value, is reflected in the net asset value (NAV); but mortality costs and policy administration costs are deducted typically by cancelling the units.

HDFC LIFE offers you ULIPS for investment. Visit the website today to choose the right plan today.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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