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Why ULIPs are better than FDs new

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Why ULIPs are better than FDs
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www.kgandhi.anindia.com Why ULIPs are better than FDs? An investment gives you financial freedom. If you invest your money from the beginning, you need not to worry about the future financial necessities. As future is uncertain, and there may be a situation in your life where you require a large amount of money to get out of that situation with minimal loss. So to effectively protect yourself from such type of situation, you must inculcate the habits of saving and investing. It may be because of your children's education, marriage or medication. Let it be anything which demands lot of money, you may outdo it if you have invested your money from the beginning itself. Hence, investment gives you more financial freedom to rely upon. If you have a desire for having a luxurious apartment and a luxurious car of your own, then it is obvious that these desires may be fulfilled by a planned investment and savings. As you invest more, you tend to become richer. And as you become richer, you may find no difficulty in achieving your personal goal. Achieving personal goals is the essence of your success in every aspect of your life. A good investment strategy requires choosing the right mix of safe and risky investments. Among safe investments, fixed deposits (FD) are the most popular. But think before investing in FD because there are some other investment avenues that provide you much better returns such as ULIPs and Mutual Funds. Following are the factors that you have to consider before investing in FD; What is the Rate of return you need to satisfy your future needs? Whether the returns generated by FD are sufficient to meet your future financial needs? Is there any other better investment option than FD? Tax benefits on the returns With FDs you deposit a lump sum of money for a fixed period ranging from a few weeks to a few years and earn a pre-determined rate of interest. In ULIPs you invest money regularly and after a period of time you will receive the lump sum amount. The return on ULIPs will be normally greater than the return on FD. Following illustration will help you to understand the return on FD and ULIP. Interest Rate on FD Bank Upto 1 year Upto 2 year Upto 3 year Upto 4 year Upto 5 year ICICI 7.25% 7.75% 7.75% 7.75% 8.25% Canara 7.25% 7.50% 6.00% 8.00% 8.00% SBI 7.00% 5.00% 5.00% 7.25% 7.75% HSBC 5.00% 5.50% 6.25% 6.25% 7.50% Citi Bank 3.35% 3.75% 3.75% 7.00% 7.00% If you are investing in FD for 1 year you will get a maximum of 7.25% return If you are investing in FD for 2 year you will get a maximum of 7.75% return If you are investing in FD for 3 year you will get a maximum of 7.75% return If you are investing in FD for 4 year you will get a maximum of 8% return If you are investing in FD for 5 year you will get a maximum of 8.25% return
Transcript
Page 1: Why ULIPs are better than FDs new

www.kgandhi.anindia.com

Why ULIPs are better than FDs?

An investment gives you financial freedom. If you invest your money from the beginning,

you need not to worry about the future financial necessities. As future is uncertain, and there

may be a situation in your life where you require a large amount of money to get out of that

situation with minimal loss. So to effectively protect yourself from such type of situation, you

must inculcate the habits of saving and investing. It may be because of your children's education, marriage or medication.

Let it be anything which demands lot of money, you may outdo it if you have invested your

money from the beginning itself. Hence, investment gives you more financial freedom to rely

upon. If you have a desire for having a luxurious apartment and a luxurious car of your own,

then it is obvious that these desires may be fulfilled by a planned investment and savings. As

you invest more, you tend to become richer. And as you become richer, you may find no

difficulty in achieving your personal goal. Achieving personal goals is the essence of your success in every aspect of your life.

A good investment strategy requires choosing the right mix of safe and risky investments.

Among safe investments, fixed deposits (FD) are the most popular. But think before

investing in FD because there are some other investment avenues that provide you much

better returns such as ULIPs and Mutual Funds. Following are the factors that you have to consider before investing in FD;

What is the Rate of return you need to satisfy your future needs?

Whether the returns generated by FD are sufficient to meet your future financial needs?

Is there any other better investment option than FD?

Tax benefits on the returns

With FDs you deposit a lump sum of money for a fixed period ranging from a few weeks to a

few years and earn a pre-determined rate of interest. In ULIPs you invest money regularly

and after a period of time you will receive the lump sum amount. The return on ULIPs will be

normally greater than the return on FD. Following illustration will help you to understand the

return on FD and ULIP.

Interest Rate on FD

Bank Upto 1 year Upto 2 year Upto 3 year Upto 4 year Upto 5 year

ICICI 7.25% 7.75% 7.75% 7.75% 8.25%

Canara 7.25% 7.50% 6.00% 8.00% 8.00%

SBI 7.00% 5.00% 5.00% 7.25% 7.75%

HSBC 5.00% 5.50% 6.25% 6.25% 7.50%

Citi Bank 3.35% 3.75% 3.75% 7.00% 7.00%

If you are investing in FD for 1 year you will get a maximum of 7.25% return

If you are investing in FD for 2 year you will get a maximum of 7.75% return

If you are investing in FD for 3 year you will get a maximum of 7.75% return

If you are investing in FD for 4 year you will get a maximum of 8% return

If you are investing in FD for 5 year you will get a maximum of 8.25% return

Page 2: Why ULIPs are better than FDs new

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Return on ULIP

ULIPs are always given more return than FD to the investors. It is always a better option to

the investors as it is generating comparatively more return than FD.

Example: Let us understand the performance of FDs and ULIPs with the help of following example;

Mr. Rahul is working with a multinational software company; he wants to save a good

amount of money for his child’s education. He is looking to invest his money in a profitable

avenue so that he can withdraw back his money with huge returns after a period of five

years. He has approached some financial Planners and most of them have guided him to

invest in two different avenues such as Fixed Deposit and ULIP. At last he decided to invest

Rs, 1,00,000 every year in ULIP and Rs. 1,00,000 every year in Fixed Deposit. But in FD he

doesn’t have the option to invest every year. So he has to deposit Rs. 100000 for one year.

At the end of first year he has to withdraw the money and again he has to invest Rs.100000

plus last year’s return (i.e. Rs.100000+Interest) in the second year. Below given table will

help you to find out the returns generated from both the investments.

(In this example we have considered the average return

from FD as 7% and Average return from ULIP as 14%)

Returns from Fixed Deposit (FD)

Company Fund Last 1 year Last 3 years Last 5 years

Birla Sun Life Creator 25.46% 66.35% 136.97%

Birla Sun Life Builder 20.60% 42.10%

69.14%

ICICI

Prudential

Balancer II 11.86% 43.69% 90.17%

HDFC Life Time Flexi Growth 6.50% 8.50% 12.90%

TATA INVEST ASSURE

PLUS

-7.28% 37.06% 165.13%

Page 3: Why ULIPs are better than FDs new

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Below given table will provide you details about the performance of Fixed Deposit return over

a period of 10 years.

Money Deposited every year = Last year’s FV + 1,00,000

Above given table shows that the return from FD over a period of 5 years is Rs. 6,15,329.07.

If Rahul is investing for a period of 10 years the return will be Rs. 14,78,359.93. Compared

to ULIPs Fixed Deposits doesn’t carry any charges like Allocation charges or Fund

Management charged. But on the other hand the return generated is very less moreover he

has to pay tax on the returns. The interest rate on FD is taken as 7% because you cannot

invest Rs. 100000 every year in FD. So you have to invest for 1 year after that you have to

withdraw it and reinvest (i.e. withdrawn amount + 100000).

Returns from ULIPs

Below given table will provide you details about the performance of Fixed Deposit return over

a period of 10 years.

Page 4: Why ULIPs are better than FDs new

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Above mentioned table shows that the investment of Rahul has gone up to Rs. 6,88,851.14

in a period of 5 years. During a period of 10 years this will grow upto Rs. 19,32,922.87.

Analysis of Returns

Returns Over a period of 5 years

Return on ULIPs – Rs. 6,88,851.14

Return on FD – Rs. 6,15,329.07

(By looking at the figure we can make out that the performance of ULIP is much better than

the performance of FD)

Returns Over a period of 10 years

Return on ULIPs – Rs. 19,32,922.87

Return on FD – Rs. 14,78,359.93

(By looking at the figure we can make out that the performance of ULIP is much better than

the performance of FD)

Page 5: Why ULIPs are better than FDs new

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Difference in Returns

Investment 5 Year Return 10 Year Return

ULIP 6,88,851.14 19,32,922.87

FD 6,15,329.07 14,78,359.93

Difference 73522.07* 454562.94**

Return on ULIP is Rs. 73522.07 more than the return on FD

Return on ULIP is Rs. 454562.94 more than the return on FD

Return over a period of 5 years = 6,88,851.14 - 6,15,329.07 = 73522.07

Return over a period of 10 years = 19,32,922.87 - 14,78,359.93 = 454562.94

Absolute Return

To find out the absolute return on the investment we should deduct Tax from the actual

return. From the below given table we can clearly find out the absolute return on ULIP and

absolute return on FD.

Over a period of 5 years

Particulars ULIP FD

5 Year Return 6,88,851.14 6,15,329.07

Tax (30%) Nil

1,84,598.72

Absolute return 6,88,851.14 4,30,730.35

Profit of Investing in ULIPs Rs. 2,58120.79

Returns on ULIPs are Tax free Over a period of 10 years

Particulars ULIP FD

10 Year Return 19,32,922.87 14,78,359.93

Tax (30%) Nil* 443507.98

Absolute return 19,32,922.87 10,34,851.95

Profit of Investing in FD RS. 8,98,070.92

Returns on ULIPs are Tax free

At the end of 5th year Rahul will receive Rs. 6,88,851.14 fromULIPs and Rs. 4,30,730.35

from FD. The return from ULIP is Rs. 2,58120.79 more than the return from FD. If he is

investing for a period of 10 years at the end of the term he will receive Rs. 19,32,922.87

from ULIPs and Rs. 10,34,851.95 from FD. The return from ULIP is RS. 8,98,070.92 more

than the return from FD.

Page 6: Why ULIPs are better than FDs new

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Graphical Representation

From the below given table you can understand the difference in return from ULIP and FD.

Why ULIPs are the best

Unit-linked insurance plans have caught the fancy of investors in urban centres. ULIPs not

only provided life cover, but also brought in a lot of transparency in the way the

policyholders' money is invested. Birla Sun Life Insurance Company revolutionalised the life

insurance industry in India with its decision to offer only ULIPs. The rest of the life insurers

followed, including the public sector Life Insurance Corporation (LIC). The key stock market

indices are touching newer peaks and it is the time to take a look at how ULIPs are

performing. The returns from growth funds of leading private sector players like, Birla Sun

Life, HDFC Standard Life, ICICI Prudential Life and Bajaj Allianz, are performing very good.

The returns on ULIPs are normally higher than the mutual funds. ULIPs do not face

redemption pressures as the insurance money is for longer term and hence offers room for

fund managers to design better, disciplined investment strategies.

Ask your query anything related to any Investment or any kind of Insurance of

any company Just visit our website www.kgandhi.anindia.com and get the best

comparison and solution and enjoy the tomorrow hassle free and paper free.

Advice on:

Insurance: Child Future Planning, Term Plan, Health, Whole life, Pension Plan,

Money Back ,Maternity, Tax Planning, Personal Accident, critical Care, Travel,

Page 7: Why ULIPs are better than FDs new

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Burglary & Theft, House hold insurance, office insurance,Shopkeepars

insurance, utensil insurance, Car insurance ,Commercial vehicle ,etc….

Investment: ULIP Plans, Systematic Investment Plan, Mutual Funds. Post Office

Scheme, Govt. of India Bonds, Fixed Deposits etc……

Foe More Details Contact :

Regards,

Kirang Gandhi

Corporate Financial Planner

www.kgandhi.anindia.com

M-9271267305,9766319919


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