WHY INVESTING IN ULIPS JUST FOR TAX SAVING IS NOT A GOOD IDEA ULIPS or Unit Linked Insurance Plans are quite popular in India as a tax saving instrument which offers the dual advantage of insurance cover and superior market returns. While it seems a good proposition in the beginning, a closer and detailed study will tell you that this may not be the best option for you if you are looking at this as just a tax saving investment.
ULIPs, in India, are primarily sold by insurance agents as a product with just 3 years lock in after which the policy holder need not pay any premium and the policy continues .They also wrongly pitch ULIP as a product where the policyholder can withdraw the money whenever he needs after 3 months. While this is true there are certain things which you the agent never tells you. While investing in a ULIP fund for 3 years, you hope to
Save income tax on your investment for 3 years.
Make some decent returns on your investment.
Withdraw after 3 years which will be good returns over your investment.
Or continue the plan without paying any premium and then withdraw the amount as and when required.
These are the premises on which an insurance agent sells you the plan. However, if you invest in ULIP only for 3 years, other than saving income tax, none of the above mentioned goals will be fulfilled. The reason for this is explained in the following paragraph.