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Who’s afraid of ULIPs?

Feb 18 2013, 08:43 IST
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SummaryThe current equity market scenario and growth in corporate incomes are now making the scene compelling for more equity exposure in your tax planning investments

It’s that time of the year when you start getting mails from your company’s finance department asking for the tax planning you have done for the current financial year. At the same time, you are inundated with related advertisements and suggestions from financial advisor-sounding tele-callers who rant out several tax planning avenues for you. And not surprisingly, all those who come in your aid are not free from biases and is often found lacking in knowledge.

What most of them undermine are your financial needs and a long-term perspective of the tax saving investment you will make. Unfortunately, several effective modes of tax saving that come with lots of benefits are marketed without a clear perspective, need or reason.

The current equity market scenario and growth in corporate incomes are now making the scene compelling for more equity exposure in your tax planning investments.

As per media reports, an analysis of the earnings of 129 companies that have announced their results for the December quarter for the fiscal year 2013 showed that while net sales grew 19.35 per cent, below the 30.22 per cent growth recorded in the year-ago quarter, operating profit rose 36.34 per cent, the highest in at least two years.

Given that the Indian economy is slowly emerging out of subdued growth over the last few quarters and stalling of the General Anti Avoidance Rules (GAAR) guidelines till 2016, the time is ripe to look at ULIPs or unit linked insurance plans, as a vital part of your tax planning.

ULIPs serve dual purpose of investment and insurance at the same time. However, people have lot of concerns pertaining to ULIPs. People remain skeptical about the practicality of ULIPs and return-generation capability of the product despite changes made towards the same.

But first of all, let’s touch the basic concern people have against ULIPs. The product, as the name suggests, is not just about equities. ULIP is not just about investing in equity alone, but about investing in equity or debt, or a blend of both equity and debt depending on your age and risk appetite and your long-term financial goal.

ULIPs provide you the flexibility to choose how you want to invest on the basis of risk return profile, through their various funds and at the same time offer the insurance umbrella for unforeseen eventualities. If we take an example of a child plan, ULIP is

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