Should you put money into ULIPs to save lots of to your kid’s future?

I need to save for my 2-year-old daughter’s schooling. My financial institution’s consultant has advised a kids’s Ulip, which can give me the triple advantages of tax deduction, tax-free maturity and life cowl. The premium will probably be about ₹45,000. Do you assume I ought to make investments on this plan?

Name withheld 

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

You will definitely get triple advantages on this funding. However, there are particular options you need to be conscious of. For one, the life insurance coverage cowl supplied by a Ulip is barely 10 occasions the annual premium, which suggests you’re going to get a canopy of ₹4.5 lakh. This will not be adequate for your loved ones. Life cowl ought to be no less than 8-10 occasions your annual revenue. It is healthier 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 Section 80C. But different funding choices may also be used for this function. For occasion, ELSS funds have given excellent returns until now and are a greater funding possibility than a Ulip. ELSS funds have a brief lock in interval of three years.

It might be argued that positive factors of greater than ₹1 lakh in a yr from ELSS funds are taxable, whereas the Ulip corpus will probably be tax free on maturity underneath Sec 10(10d). But 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 probably be taxed like fairness funds.

Also remember the fact that ELSS funds don’t bind you right into a multi-year investing dedication. If an ELSS fund doesn’t do effectively, you’ll be able to 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 modifications within the asset combine. Unlike an ELSS the place investments can’t be touched until the lock-in interval is over, Ulip buyers can swap from an fairness fund to a debt fund or liquid fund and vice versa. What’s extra, the positive factors comprised of such switching usually are not taxable.

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

Subscribe to Mint Newsletters * Enter a legitimate e-mail * Thank you for subscribing to our publication.

Never miss a narrative! Stay related and knowledgeable with Mint.
Download
our App Now!!