The unit-linked insurance plan (ULIP) debt funds are in the spotlight again after the removal of the long-term capital gains (LTCGs) tax for debt mutual funds on April 1, 2023.
Annual contributions to ULIP premiums are eligible for Section 80C deductions as per the Income-tax Act, (ITA), 1961, they offer a life cover of 10 times the annual premium.
Investments in ULIPs extend an investor a tax-free status subject to certain conditions. After the lock-in period of five years, the maturity amount is tax-free in case the annual premium paid for the ULIP will be Rs 2.5 lakh and below.
However, the proceeds from ULIPs will lose their tax-exempt status in case if the total premium of all ULIP policies, which includes single or multiple, surpass Rs 2.5 lakh on an annual basis.
Also, capital gains tax will be applicable on maturity proceeds, though. This is what makes ULIP debt funds considerably attractive for small investors instead of the debt mutual funds and bank fixed deposits (FDs).
In addition, ULIP debt funds offer the flexibility to switch between funds, which are generally free of charge. This along with the added tax benefit make them a compelling buy to generate wealth in the long run.
As suitable investment tools, it is important to know that ULIPs and mutual funds serve different goals and risk factors.
While ULIP debt funds may be a suitable investment tool in the case of young professionals, senior citizens are required to prioritise safety first in this regard.
Senior citizens need to undertake due diligence and zero in on investment vehicles that offer capital protection. They need to focus on an investment option that provides regular income.
As a senior citizen, the choice should be to opt for investment options that provide liquidity. This is considering a need could arise to access those funds to address an emergency situation, which could be mostly medical.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.