MONEY MATTERS
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Investment
Ramesh Lohani: I want to invest in the equity market, but after the introduction of the long term capital gains (LTCG) tax on equities, I am slightly hesitant as my returns will attract tax. Should I opt for a unit linked insurance plan (ULIP) instead?
Brijesh Parnami, Executive Director and CEO of Essel Wealth Services, replies:
Post the introduction of the LTCG tax on stocks and equities, ULIPs have certainly gained tax advantage. Here is a quick comparison between mutual funds ( MFs) and ULIPs.
Taxability: Here, ULIPs score higher compared to MFs. As per the revised tax norms, wherever an MF invests in equities, it will be taxable while returns on ULIPs are non- taxable as ULIPs are insurance products.
Fund management cost: Expense ratios are very low in MFs compared to ULIPs. Plus, there is no mortality or fund management fee. However, some new ULIP products available online also have very low charges.
Returns: MFs are consistently delivering better returns, there is no entry load and low expenses ratios have a significant impact on returns in the long term.
Flexibility: MF investors can switch or stop investing if the fund does not perform well, but ULIPs do not offer that flexibility.
Transparency: As MFs are widely tracked by several agencies, investors can take a look at their portfolios and find out their allocation to sectors, market segments and even individual stocks. ULIPs, too, offer the same information, it is not so widely tracked and very few investors would know who all are the best- performing ULIP funds.
Liquidity: You can exit mutual funds whenever you like, but ULIPs have a five- year lock- in period.