ULIP vs Fixed Deposits – Which to choose?

You might have come across this dilemma, which invest­ment prod­uct to choose – ULIP or Fixed Deposits? First let’s under­stand what these two products -

What is a ULIP and What are Fixed Deposits

ULIPs vs Fixed Deposits – Which is bet­ter for you?

Before you zero on any of these prod­ucts, answer the fol­low­ing questions?

a) What kind of investor are you? a) Risk tak­ing b) Conservative

If you are a con­ser­v­a­tive investor, Fixed Deposits is bet­ter than ULIPs. If you are a risk tak­ing investor, you can con­sider ULIPs.

b) What is the tenure for your invest­ment a) Less than 3 years b) More than 3 years

If your invest­ment tenure is less than 3 years, Fixed Deposits is bet­ter than ULIPs. If you are a long term investor, ULIPs are better.

c) What is the Rate of return you are expecting?

If you are expect­ing a fixed rate of return (rate pro­vided by the Fixed Deposit Provider), Fixed Deposits is bet­ter than ULIPs

d) What are the tax ben­e­fits on the returns?

Return on Fixed Deposits is tax­able whereas with­drawal of ULIP invest­ment is tax free.

Note – These ques­tions are based con­sid­er­ing the two invest­ment prod­ucts – ULIP and Fixed Deposits. The assump­tion is that the investor has to choose among these two products.

Another angle to under­stand the dif­fer­ence is – If you are a risk tak­ing investor, with an invest­ment tenure of more than 3 years and expect­ing excel­lent returns ( returns more than fixed deposits), then you can invest in ULIPs.

Advan­tage of ULIP is insur­ance. Every insur­ance comes with an insur­ance cover. A major draw­back of an ULIP is the expenses/charges are much more as against Fixed Deposit.

Related posts:

1. Fixed Deposits as an investment
2. ULIP poli­cies in India – An Analysis
3. ULIP vs Mutual Fund – Where should I invest?
4. ULIP – Under­stand the jar­gon before investing
5. ULIP – Every investor should know this information