Home > Deliberations, Personal Finance > Is ULIP a Good Investment Route? (Part 1 of a 3 part series)

Is ULIP a Good Investment Route? (Part 1 of a 3 part series)


It was the time of the year again to start tax planning. This year, I fortunately had excesses created to meet the investment needs required to meet the tax declarations that I had given to my employer in the beginning of the year.

I primarily wanted to invest in an equity plan because I personally feel that it is a perfect investment option given the current market situation. I narrowed down to 2 options within equities:
1. ELSS i.e. mutual funds with tax benefits and
2. ULIP i.e. insurance products with tax benefits

Most of my friends and colleagues suggested me to go for ULIP. Why? They think that ULIP is (i) safer (ii) give higher returns and (iii) give an added advantage of life insurance.

Let us examine the first 2 listed advantages. Being a finance graduate, I know that both ULIP and ELSS invest in the same underlying asset that is shares of companies trading in the NSE and BSE. Shares, no doubt, are a risky proposition. But, since both these products invest in the same universe of shares, it is unfair to say that one has higher safety or returns potential than the other.

It is the capability of the fund manager which decides the kind of returns that are churned. ULIP by default DOES NOT give higher returns and likewise, Mutual Funds also DOES NOT give higher returns. It all boils down to the capability of the FM.

So, that negates the 2 popularly known advantages. In the next series, I will look at the 3rd advantage and try to give a rational view on the same.

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  1. June 3, 2009 at 9:19 pm

    OHH Some very interesting and insightful thoughts. I like this.

  2. Ranjan
    June 11, 2009 at 11:13 am

    ULIPs are the worst investment option. One should keep insurance away from investmets. The amount you loose as entry load in UlIPS takes 3-4 yrs to recover. That means after 3-4 yrs you will get what a had actually invested i.e. no decent returns till almost 5 yrs.

    Only tax savers who are fooled by the options of investment plus insurance plus tax savings fall for it without realizing the hidden costs.
    I AM ONE OF THOSE 😦

    • June 11, 2009 at 11:23 am

      @Ranjan

      I agree. ULIPs are a bad investment for the financially savvy people. Once you understand how a ULIP functions, you will never invest in it again.

      But, I feel that ULIPs are performing a good deed for the society. If it was not for the fancy commissions they offered to agents, most of the Indian population would would never be aware of the stock market or mutual funds. They do a good job of getting people to invest. I personally know a lot of my friends who have made their entry into the world of mutual funds with a ULIP.

    • Saurabh Bajaj
      March 2, 2010 at 6:05 pm

      Hi Ranjan,

      I read your comments and completely agree with you. ULIPs are mostly marketed by advisors as they get fat commissions as compared to mutual funds where the advisor has to charge a fee to the client.

      I have myself started a drive to educate the investors in this regard and helping them out for retirement planning, without going in for a ULIP.

      You may feel free to mail me on saurabh.nidhiinvestments@gmail.com in case you need any further information.

  3. Ravindra
    December 17, 2009 at 3:09 pm

    Friend ULIP can be as good as any Mutual fund in long run. do you know what is the main chage in ULIP? it is not fund allocation what u mentioned it is fund management charge it is charged on total corpus you made..and in mutual fund it is called expanse ratio?
    No investment is good or bad it depends whats ur goal and how u manage it

  4. November 11, 2010 at 2:08 pm

    Yes, Some very interesting food for thought.

  5. xyz
    December 24, 2010 at 11:16 pm

    Hello Ravindra,

    No investment is good or bad it depends whats ur goal and how u manage it

    This comment is too general. Investment is just like any other commodity in market. You will have to choose.

    You may find bad quality tomatoes at vegetable market, but still you people selling it , and also people buying it !! Some may find they got cheated when they reach the next vedndor with fresh tomatoes, and someothers will never find it untill they take it out to cook.

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