Tax Planning

Long Term Capital Gains Tax: Why is this the best time to invest in ULIPs?

Google+ Pinterest LinkedIn Tumblr

 

Investors are always on the hunt for the most beneficial and the most rewarding options to invest post implication of new reforms in the budget. And here comes the best option for all the potential investors!

Re-introduction of Long Term Capital Gains Tax in Budget 2018 at 10% on the sale of equity shares and equity-oriented mutual funds is considered a discouraging step for investors and has left them in search of other fruitful, and more importantly, tax-saving alternatives. For individuals who earn a regular salary and invest in mutual funds and equities for wealth accumulation, the LTCG would mean an additional tax burden.

The best alternative post budget is to invest in Unit Linked Insurance Plans.

ULIPs are investment instruments that combine benefits of both life insurance and investments in capital markets. The premium paid for a ULIP is divided into two parts; one part goes towards coverage of risk to life and the other towards investment in money market instruments. ULIPs as an investment category have a lot of inherent benefits.

The biggest benefit is exemption and deduction in tax imposition.

Every year, the premium paid is exempt under section 80C. The maturity amount received by you is also exempt under section 10(10D). Thus it has both short-term and long-term benefits as it is an insurance cum investment product.

Another benefit from a tax perspective is that there is no implication of tax while switching. You can shift between equity and debt funds at any time during the year. This benefit also attracts the customers as it adds to flexibility for investors. This also adds an edge against mutual funds in comparison to ULIPs.

The Unit Linked Insurance Plans are beneficial in the long term as ULIPs have a lock-in period, usually of 5 years which gives investors a long-term asset, unlike mutual funds which you may liquidate in panic. Longer tenure is beneficial as it usually yields better returns.

The most crucial aspect of Unit Linked Insurance Plans is that they are considered as insurance products. Instead, they are a combination of both investment and insurance products. Therefore, ULIPs take advantage of providing an insurance cover and is considered an ideal option for those who don’t want to take higher cover through term insurance and for those who still consider mutual funds as risk-taking investments.

Commonly observed comparison between mutual funds and Unit Linked Insurance Plans can be briefed through tax saving perspective as follows:

Equity Mutal Funds Debt Mutual Funds ULIP
Considered Long term After 1 year After 3 years N.A.
LTCG 10% 20% NIL
STCG 15% As per slab NIL

So tax savers, the wise citizens and investors, here are Edelweiss Tokio’s ULIPs to help you save tax and realise your dreams.

Comments are closed.