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A Fixed deposit is the preferred saving option of many as it provides a higher rate of interest than a savings account. However, after the repo-rate cut announced by RBI, the FD interest rates across all the banks in India have taken a hit. As a result, people are looking for alternatives to FDs that provide similar or better returns. One of the attractive options is ULIP. Let us look at how ULIPs compare to FDs.
What is ULIP?
ULIP is a life insurance plan that provides a maturity benefit as well. A part of the premiums you pay is invested in equity or debt fund of your choice. The maturity amount includes the returns earned on this investment. But ULIP better than FD?
Yes. A ULIP provides more features and better versatility as compared to FDs. We give you a few reasons why you should prefer ULIP over FD-
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Life insurance
The most prominent amongst the advantages of ULIP over FD is that they offer Life insurance. A ULIP provides a death benefit to your loved ones in case of your demise. In this way, you can ensure that your dependents are cared for even in your absence. Thus, you get the dual advantage of life insurance in addition to the chance of earning good returns via a ULIP.
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Flexibility
ULIPs are very flexible. You can switch between debt and equity instruments to take advantage of the market conditions. Therefore, you stand a chance of earning better returns with ULIPs. However, FDs operate at a fixed rate of interest, and hence the returns will mostly be the same.
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Tax saving
The interest income that you earn on fixed deposits is taxable. However, ULIPs can help you save on taxes. The premiums that you pay toward ULIP are eligible for a tax deduction. The maturity amount of a ULIP is also tax-exempt. As a result, ULIPs are an excellent tax-saving instrument.
Thus ULIPs are overall a better place to invest as compared to FDs. Apart from ensuring that your money is safe, and providing you life cover, they also give you a chance to earn by investing your money. This versatility is what makes them one of the best avenues to put your money in. When purchasing a ULIP plan, make sure to go through all the features and read the terms and conditions in the policy document thoroughly.
FD vs ULIP
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FD
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ULIP
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You can avail tax exemption only on the investment amount; the returns are taxable
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You can avail tax deductions on premiums, as well as the maturity amount
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FD interest rates can go down on account of inflation
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ULIP, especially, debt related ULIP are likely to fetch more returns as bond rates go up
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FDs offer no life cover
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ULIPs in addition to saving your money and fetching you returns on your investment also provide life insurance
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FDs are not flexible. Once you invest your money, it has to stay in the same place for the term of the FD or till you decide to withdraw.
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You can easily change your fund allocations from equity to debt and vice versa according to the market conditions.
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You earn a fixed interest on FDs
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The returns vary according to the market conditions
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