With the LTCG levied on Equity MFs, we are seeing both media and the Insurance Companies saying, ULIP does not have LTCG. This is their new marketing strategy to SELL ULIPS. This clearly is another time when investors will burn their hands at ULIPs and will go away from Equity.
How many remember the time when ULIPS were just launched and aggressive misselling had happened? It was after a few years when investors realized that this was not the apt investment for them and synonymed ULIPS to Equity.
The MF Industry has already gone through this once where they have had to educate investors, that Mutual Funds are different from ULIPS. This will be a dampener for the MF Industry and the investors at large if awareness about ULIPS and MF with LTCG is not created. This clearly is the new talking point for advisors with new investors.
Mr. Pankaaj Maalde, CFP shares his views and an outline of his talking points on ULIPS vs. MFs with his investors. Advisors take note!
Charges of the taxes collected on capital gains shouldn’t matter for wealth creators.
From April 1, 2018, new Financial Budget will come into implementation; this can help ULIPs to promote the products where long-term capital gains are not taxed (LTCG). Whereas Capital gains on stock markets and Mutual Funds will be taxed for gains over 1 lac rupees at 10.4% (10% LTCG+4% Cess)
ULIPs has advantages, but when compared to Mutual Funds, they can’t compound money the way Mutual Funds do.
Insurance Products are kept out of the ambit of this tax. And maybe this can lead to misselling.
ULIPS have three major points-
1. Allocation Charges every year.
2. Policy Admin Charges.
3. Higher Lock-in Period
Stick to mutual funds, invest for long periods to generate wealth. Power of compounding is the best provision here.
Insurance Agents will tell investors that in ULIPS, there are free switches available, without any tax liability. According to me, in practice it is not easy to do that and one should avoid timing the market.
When you look at Mutual funds, they beat the Benchmark and generate good wealth. Also, there is no lock-in period, except ELSS that too three years. Whereas, ULIPs have a minimum lock-in period of 5 years. Mutual funds give diversified portfolio and give the chance to shuffle from one scheme to another.
I would like to suggest my clients as well as other investors and advisors to continue with Mutual funds if they want long-term benefits.
Article first appeared at mutualfundlive.com
http://www.mutualfundlive.com/Lounge/Advisor-Viewpoint/ULIPs-are-good--but-Mutual-Funds-Equity-Investments-are-great!/37
