Bajaj Allianz ULIP – The Next Big Thing In Investment ?


The Reintroduction of Long Term Capital Gains (LTCG) taxes announced in the Budget 2018 brought back to life the debate on ULIPs.

Ten years back, buying a Unit-linked Insurance Plan (ULIP) was most probably a bad deal for the investor. High expenses, huge commissions and opaque structures  and  policies  did not serve the investor’s interest. But times have changed. Nudged by insurance regulator IRDAI, insurance firms have cleaned up their ULIP  act. Today, the  market  is  witnessing a rise of a new kind of ULIPS : N-ULIPS, an acronym for New-Age ULIPS. Designed for the savvy and long-term customer who buys the product online, the latest avatar of ULIPS have lower cost, are transparent about charges and some even give insurance virtually free.

Perceptions are slow to change, even if the underlying realities change dramatically. Let us consider the example of term insurance products. The perception ‘no returns equals to no benefit’ is slowly but surely changing. While there were few takers for this category earlier, the awareness level has gone up considerably over the last few years. This  has  been  possible due to continuous efforts by life insurers, the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) scheme and also the development of the digital platforms.

Currently Unit Linked Insurance Products (ULIPs) are experiencing a similar fate where the awareness levels are not as high as they should be. Despite the changes that this product category has undergone, there seem to be very few people who are talking about the benefits in the correct context. A quick glance through various product  reviews  and  product comparisons might influence you towards a notion that ULIPs are NOT meant for you.

NULIPs: Charges that are lower than ever

Typical charges in ULIPs are Premium Allocation Charge (as a percentage of premium at the time of premium payment), Policy Administration Charges (deducted monthly as a percentage of premium or a fixed Rs. value), Fund Management Charges (percentage of fund value adjusted in daily NAV) and Mortality Charge (to provide life cover based on amount at risk and age).

ULIPs did have high charges in the first decade, since their introduction. However, these charges have reduced dramatically over the years. The total  premium  allocation  charge  of  most ULIPs for the first 5 policy years reduced from about  57%  in  2006  to  a  range  of between 15% – 20% in 2013 and currently in 2018, the Premium Allocation Charge is zero. That is correct! There are NO Premium Allocation Charges in some NULIPs.

The Fund Management Charges (FMCs) for NULIPs are capped at 1.35% of the fund  value, annually, which is much  lower  than  the  expense  ratio  cap  of  2.50%  on  equity  Mutual Funds (MFs).

Tax benefits – No LTCG

NULIPs with a sum assured which is at least 10 times the annualised premium are eligible for tax exemptions under Section 10(10D) of the Income Tax Act. Thus, Long Term Capital Gains (LTCG) tax is not applicable. In addition, customers can move their money between Equity, Debt and Cash Oriented Funds at any point without incurring any potential tax liability.  This is a definite edge over competing savings and investment instruments such   as Mutual Funds which incur LTCG tax with effect from 1st April 2018.

With their low charge structures and flexibilities and features offered which promote long term investment behavior, e.g. loyalty addition, return of mortality charge at maturity, etc. and the recent LTCG tax announcement; NULIPs have become an attractive and compelling proposition for any long-term investor.


ULIP : Salient Features



ULIPs or Unit Linked Insurance Plans are a combination of investment and insurance. Investors can choose to invest in different funds such as equity funds, debt funds, hybrid funds, money market funds, etc.
Benefits ULIPs offer triple benefits of insurance, investment, and tax savings.
Fund Switching Options ULIPs allow investors to switch funds according to their risk appetite and requirements, without having to pay anything extra.
Lock-in Period ULIPs have a minimum lock-in period of 5 years.
Charges ULIPs levy Policy admin charges, mortality charges, premium allocation charge, and fund management charges.
Fund Management Charges 1.35%
Portfolio Disclosure ULIPs disclose portfolio every quarter. Some ULIPs reveal portfolio each month.

Asset Allocation Flexibility

ULIPs allow investors to make a certain number of free switches in a year. In case an investor exhausts the number of free switches, they can pay a nominal fee and avail switching options.

Tax Benefits

ULIPs offer tax exemption under Section  80C  of  the  Income  Tax  Act  on the premiums paid against the policy. In addition, maturity proceeds and death benefits offered under the plan are also tax-free.
Additional Benefits Some ULIPs offer loyalty bonus to the investors.

Step-by-Step Guide to Choose a ULIP

Figuring out the right ULIP strategy is not that difficult if you have got your basics right. The below enlisted steps will help you zero-in on the right ULIP that will eventually help you address your financial goals as you had planned of:

  1. Choosing Asset Class : You would be aware of the fact that Equity, Debt and Balanced Funds are the 3 basic funds that are generally offered by a ULIP. Therefore, to start with, you should be aware of the underlying funds offered by a particular ULIP. The knowledge of underlying funds will help you align them with your risk appetite and financial
  2. Changes : The next step is to look for the applicable charges in a ULIP. There are a number of fees & costs associates with ULIP including:
    • Fund management Charge
    • Premium Allocation Charge
    • Partial Withdrawal Charge
    • Mortality Charge
    • Switching Charge

These charges play  a crucial role in deciding the final cost associated with a  ULIP and the premium amount you’ll be required to pay.

  1. Flexibility of Switches between Asset Class : Make a point to check how many numbers of switching options are available for the ULIP chosen by you. It is undoubtedly one of the most convenient aspects of ULIPs. With ULIPs, you can always switch from one fund to another if it’s not performing well. Therefore, it becomes important for you to find out the number of switches you will be able to make.
  2. Investment Goal : Take your time to decide the objective behind your investment. It always helps to set a financial goal before starting to
    • What is your risk appetite?
    • Are you making the investment for the long term or short term?

Over to You!

Successful investors often find out the best investment avenue and invest their resources to generate massive returns. And when you weigh ULIPs on the balance of investment benefits, ease, flexibility, transparency, etc., you’ll notice that ULIPs should also have place in the Investment Portfolio on account of four Key Benefits :

  •    Access to varied asset classes
  •    Low effective charges
  •    Flexibility and ease in terms of investment options/funds/withdrawals
  •    Tax benefits



Author: Midas Finserve

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