There is a certain kind of confidence you see online these days. Especially when it comes to money.
Scroll through any personal finance page, and you will hear the same line that “Do not invest in FDs”, followed quickly by “ULIPs are a scam”. The way it is said leaves no room for doubt.
FDs are for people who do not understand inflation. ULIPs are for people who got fooled. And if you still hold either, you probably need to “fix your financial literacy”.
It is the kind of thing that starts out as good advice, but slowly turns into gospel. I have seen friends remove FDs from their portfolio just because someone on Instagram said it was a waste of money. Or refuse to even consider a ULIP, without knowing what it actually is.
I am not defending everything about these products. Both have issues. But somewhere along the way, we stopped talking about where they do work. And started pretending that only mutual funds, stocks, and SIPs are the right way to invest.
That is not how money works. FDs and ULIPs are not perfect, but they are not pointless either. I will tell you why.
When “Old-School” FD Still Works
Everyone loves to say FDs are outdated now. That they do not beat inflation, that they are fully taxable, and that smarter options like liquid funds or debt mutual funds exist.
On paper, this is all true. But in real life, not everything can be solved by paper logic.
Sometimes, the reason an FD works has less to do with percentages and more to do with peace of mind.
Let us say someone has ₹3 lakh saved for a family trip abroad. The flight bookings are three months away. They just want that money to stay safe.
In that case, does it matter whether the return is 5.8 percent or 6.1 percent? Not really. What matters is whether the full ₹3 lakh will still be there when they need it.
FDs are good at doing exactly that. The number does not fluctuate. The interest is fixed. And unless the bank completely shuts down, which is extremely rare in India, the money is as safe as it gets.
Even then, there is deposit insurance up to ₹5 lakh under DICGC, which covers most small depositors.
There is also the psychological angle.
An FD shows up in your netbanking screen as something that feels solid. You know the maturity date. You know the payout. You can set it and forget it without worrying about categories, interest rate movements, or NAV fluctuations.
This becomes even more important when the goal is non-negotiable. Like school fees, or a medical bill, or margin money for a home loan. With those kinds of timelines, it is not about chasing the best return. It is about protecting the money you already have.
What About Liquid Funds? Are They Better?
Yes, but only sometimes.
Liquid funds do make sense in many cases. They are ultra-short-term mutual funds that invest in treasury bills, commercial paper, and other money market instruments. Over the last many years, liquid funds have generally given better post-tax returns as compared to FDs.
They also offer better flexibility.
You can enter and exit on any day. Some even offer instant redemption. There are no lock-ins, and they are not subject to TDS like FDs are.
So why do some people still choose FDs?
Because liquid funds still carry market-linked risk. They are designed to be low-risk, not no-risk. Their NAV changes daily. Sometimes it moves by just a few paise.
But sometimes, it falls. And that can be enough to ruin a short-term plan.
In fact, India has already seen this happen.
In 2019, a few debt mutual funds, including liquid and ultra-short funds saw sharp NAV drops due to exposure to IL&FS and DHFL. Franklin Templeton’s debt fund freeze in 2020 also shook investor trust. Some liquid funds also witnessed NAV drop of 3 to 5%.
These episodes reminded people that even “safe” debt funds can carry counterparty risk.
That is the part no one talks about on social media. Liquid funds can fail if the instruments they hold default. FDs, on the other hand, are direct loans to banks and most Indian banks are heavily regulated. They are not immune, but they are backed by systems that do not let them fall quietly.
So yes, liquid funds are a smart option in many portfolios. But they are not a one-size replacement for FDs. The next time someone says “Why did you not just use a liquid fund?”, the answer could be very simple “Because I needed that money intact, on that date, without opening an app to check NAV.”
The Case for ULIPs: Why “One-Bundle” Still Works for Some
Most personal finance content online says the same thing about ULIPs: avoid them. And for good reason that the older ones were messy. High charges, confusing structures, fat commissions, and a long lock-in with unclear returns. They deserved the criticism.
But things have changed. And more importantly, not everyone has the same needs or behaviour as an ideal investor on paper.
Let us start with the obvious: yes, term insurance + mutual fund is the better approach in most cases. It gives higher insurance cover, lower costs, and more flexibility.
A ₹10,000 monthly SIP and a ₹500-per-month term plan can easily outperform a typical ₹1.5 lakh-per-year ULIP.
But here is the reality: not everyone will do that.
I have met enough people who do not want to deal with multiple logins, fund categories, insurance quotes, nominee forms, and SIP modifications.
They are not financially illiterate. They just want one thing that works and keeps them committed. For them, a ULIP becomes a system that enforces structure. Whether it is optimal is a second question.
Basically, ULIPs are not for the disciplined DIY investor. They are for the person who needs discipline enforced. Someone who needs a “black box” product that keeps going even when they are distracted, unsure, or emotionally reactive.
They are also for people who genuinely value:
- One plan, one premium, one goal
- Tax-free maturity under Section 10(10D), for premiums under ₹2.5 lakh/year
- Life cover bundled with investments
- Staying invested without thinking about market moves
ULIP vs Term + Mutual Fund: Still Not Close?
That depends. Older ULIPs had huge first-year costs, sometimes 40% of the first premium. But after changes, the IRDAI now caps the overall reduction in yield for ULIPs, with a maximum of 3% for policies up to 10 years and 2.25% for longer terms. Many modern ULIPs have zero allocation charges, capped fund management fees (1.35% or less), and options to switch between equity and debt without tax impact.
Suppose someone puts ₹1.5 lakh/year for 15 years into a ULIP. The IRR after charges may come to around 8.5 to 9.5 per cent, assuming market conditions hold up. The same investment in a mutual fund + term combo might give 10 to 10.5 per cent, but the investor must stay invested through volatility, rebalance allocations manually, and manage both products side by side. Not everyone does that.
Also, equity oriented mutual funds are now taxed at 12.5% on long-term gains. ULIP maturity, under the limit, is still tax-free. Over time, that gap closes faster than people assume.
When ULIPs Go Wrong (and Why They Still Do)
Of course, ULIPs go wrong when:
- They are sold as short-term products
- People exit before 5 years
- Investors do not understand what funds they are in
- It is pushed only to earn commission
I once reviewed a ULIP that someone bought thinking it was a tax-saving FD. The premium was ₹1 lakh per year. Three years in, they surrendered it and got back only ₹1.9 lakh. It was a disaster. But not because ULIPs are inherently bad as it was bad because the person had no idea what they bought.
ULIPs work only if the person understands the time horizon, chooses the right fund, and commits for at least 10 years. Without that, it will always feel like a trap.
Finally, What to Remember
Let me be honest, both FDs and ULIPs have earned some of the criticism. But the mistake is assuming their worst-case use is their only use.
FDs disappoint when people expect them to grow wealth. They are not designed for that.
They are for safety, not compounding. ULIPs disappoint when they are sold without explanation, or when investors treat them like quick-return products.
That mismatch between what the product is and what the buyer expects is where the damage happens.
It is not that the products are toxic. It is that people often use them for the wrong job.
So what should you actually keep in mind?
If you are looking at an FD, ask: “Do I need this money in the next 1 to 2 years?” If the answer is yes, then maybe an FD is not outdated and maybe it is exactly what you need.
If you are considering a ULIP, ask: “Will I stay for 10 to 15 years without touching this money?” If the answer is no, do not enter. But if yes and if you understand the structure, then it may work better than doing nothing at all.
The internet loves sharp takes. But money rarely works in black and white. Every tool has a place. You just need to know when to use it and when to leave it on the shelf.
Author Note
Note: This article relies on data from fund reports, index history, and public disclosures. We have used our own assumptions for analysis and illustrations.
The purpose of this article is to share insights, data points, and thought-provoking perspectives on investing. It is not investment advice. If you wish to act on any investment idea, you are strongly advised to consult a qualified advisor. This article is strictly for educational purposes. The views expressed are personal and do not reflect those of my current or past employers.
Parth Parikh has over a decade of experience in finance and research. He currently heads growth and content strategy at Finsire, where he works on investor education initiatives and products like Loan Against Mutual Funds (LAMF) and financial data solutions for banks and fintechs.