why ulips are better than fd

8/14/2019 Why ULIPs Are Better Than FD

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Why ULIPs are better than FD....? (Revised)

Dear Readers we are very sorry for the confusion caused from the last article wepublished with the title Why ULIPs are better than FDs. We explained the article by

taking few parameters into consideration and those are the actual facts but we didntmention it in the article. We think that created confusion in few of you. We would like

to clarify those points for your interest in this article. Following are the pointsillustrated/ discussed in this article.

Comparison of returns from ULIPs and FDs Comparison of Tax liability on the Contribution to ULIPs & FDs Comparison of Tax liability on the Maturity benefits from ULIPs & FDs Reason for highlighting Birla Sun Life Insurance Clarity on charges in ULIP Plans

Returns on FDHere we are assuming that Mr. Rahul is investing Rs. 100000 every year for 5 years. InFD we dont have the option to invest every year on the same account. So Rahul

decided to invest Rs.100000 in the first year for 5 years term, Rs. 100000 in thesecond year for 4 years term, Rs. 100000 in the third year for 3 years term, Rs.

100000 in the fourth year for 2 years term and Rs. 100000 in the fifth year for 1 yearterm. From the below given illustration you can clearly understand the total return that

Rahul is going to receive at the end of fifth year.

Tax RateWe are taking the Income Tax rate as 30% considering the annual income of Rahul is

more than Rs. 500000.

For Five yearsBelow given table will help you to find out the returns that Rahul is going to receive at

the end of 5th year for a FD of 5 years term.


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The return received at the end of 5th year is Rs. 1,46,932.8077.

For Four Years

This table will help you to find out the returns that Rahul is going to receive for a FD of4 years term.

The return received on 4 years FD will be Rs. 1,34,793.55.

For Three Years

Below given table will help you to find out the returns that Rahul is going to receive fora depodit of 3 years term.


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The return received on 3 years FD will be Rs. 1,24,229.69.

For Two Years

This table will help you to find out the returns that Rahul is going to receive for a FD of2 years term.

The return received on 2 years FD will be Rs. 115,025.25

For One YearFrom this table you can see the Return Rahul is going receive for a FD of 1 year term.


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The return received on 1 years FD will be Rs. 1,07,000

Total Returns from FD

For 5 year term Rs. 1,46,932.80For 4 year term Rs. 1,34,793.55

For 5 year term Rs. 1,24,229.69For 5 year term Rs. 115,025.25

For 5 year term Rs. 1,07000.00

Returns from ULIPBelow given table will provide you details about the performance of ULIP returns over a

period of 5 years.

The return from ULIP is far better than FD. Because FD has generated a total return ofRs. 5,89586.89 during a period of five years. But the returns from ULIP is Rs.

6,60431.18 that is Rs. 70,844.29 more than FD.


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Tax Calculation on the ContributionBelow given table will help you to understand the tax amount on the contribution of FD

& ULIP

Tax liability on the Contribution to FDsTerm Yearly Contribution Tax (30%)

5 years 1,00,000Nil*

4 years 1,00,000 30,000

3 years 1,00,000 30,000

2 years 1,00,000 30,000

1 year 1,00,000 30,000

Total Tax Amount Rs. 1,20,000

*If you are investing in FD for a term of 5 years (in tax saving scheme) you will beeligible to get tax benefit on the contribution (i.e. on Rs. 1,00,000).

Note: Tax on contribution (Rs 1,00,000) will not be deducted from your deposit. Butremember you have to pay a Tax of Rs. 30,000 every year from your income

towards this contribution.

Tax liability on the Contribution to ULIPsTerm Yearly Contribution Tax (30%)

5 years 1,00,000Nil*

4 years 1,00,000 Nil



1 year 1,00,000 Nil

Total Tax Amount Nil

* The amount you are paying as a premium to ULIP is absolutely free from tax. Itmeans there is no need of paying tax on the amount you are invested in ULIPs (subject

to a maximum of Rs.1,00,000).

Tax Calculation on Total ReturnsTax Calculation on Returns from FD

Term Return Taxable Return Tax (30%) Actual Return

5 years 1,46,932.80 46,932.80 14079.84 132852.96

4 years 1,34,793.55 34,793.55 10438.07 124355.48

3 years 1,24,229.69 24,229.69 7268.91 116960.78

2 years 1,15,025.25 15,025.25 4507.58 110517.67

1 year 1,07000.00 7000.00 2100 104900.00

Total Returns Rs. 5,89586.89

Tax Calculation on Returns from ULIPTerm Return Taxable Return Tax (30%) Actual Return

5 years 6,60431.18 Nil Nil 6,60431.18


Real Returns AnalysisThis table shows you the returns on your investments after considering all the taxliabilities including contribution and return.


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Real Returns on FDContribution Tax Value Return Tax Value Real Return

1,00,000 Nil 1,00,000 46,932.80 14079.84 32852.96 1,32,852.96

1,00,000 30000 70,000 34,793.55 10438.07 24355.48 94355.48

1,00,000 30000 70,000 24,229.69 7268.91 16960.78 86960.78

1,00,000 30000 70,000 15,025.25 4507.58 10517.67 80517.67

1,00,000 30000 70,000 7000.00 2100 4900.00 74900.00

Total Returns Rs. 4,69,586.89

Real Returns on ULIPContribution Tax Value Return Tax Value Real Return

5,00,000 Nil 5,00,000 1,60,431.18 Nil 1,60,431.18 6,60431.18


While looking at the real returns (Rs. 4,69,586.89) from FD you might feel that it is a

wrong calculation. Because the total returns is less than your investment. At the end of5th year you will receive an amount ofRs. 5,89586.89. But remember on the other hand

you have to pay tax on your investments; it is not free from tax. For your easyunderstanding we have shown it as a deduction from your Returns. But in case of ULIPs

your investments and returns are free from tax.

Reason for highlighting Birla Sun Life InsuranceWe dont have any intention to promote Birla Sun Life Insurance products. We justwanted to show you some of the best performing funds in the market. In this article we

have chosen three products of Birla Sun Life (without any bad intention), in our nextarticle it can be HDFC Standard Life, ICICI Pru Life or any other company. As per the

Fund Performance report came in moneycontrol.comBirla Sun Lifes fund were in thetop position. This is the main reason of choosing Birla Sun Life Products. Below given

two tables are the screen shots taken from moneycontrol.com. It has given the returnof ULIP for the last 3 years, returns in long term will be much better than this.


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why ulips are better than fd

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