Are ULIPs really bad? A detailed analysis

[Kiranonlinee]

How can

in general MFs returns are higher than the ULIP returns..
What I have observed in long term, ULIPs funds returns dont beat after tax returns of the MFs.
ULIPs returns don't have very high alpha.
One midcap example I have already given earlier.

This is another example of Bluechip fund which is specifically largecap fund:

Here is snapshot of HDFC ULIP provided fund:

View attachment 107345

Whereas some of the good consistent performers in largecap space has given 10 years returns around 14%. If i remove 12.5% tax as well then return comes as 12.25% which is higher than ULIP return of 11.8%.

You can refer to my earlier analysis where we both agreed that MFs post tax returns are going to be equivalent to the ULIP return but I havent seen MFs post tax returns are less than any comparable ULIP fund.

Also while calculating tax you forgot to deduct initial investment of 20L as tax is on capital gain not on whole corpus.

So overall is :

• I have included all the goodness of ULIP like return of mortality/insurance/fund management charges etc. while calculated the return of ULIP.
• I haven't included 1.25L tax harvesting which you can do using MFs in MFs returns. 3rd Year onwards you will be able to save tax on 1.25L every year which also I haven't considered positive for MFs returns. This result into around 22L without tax gain.
• I haven't included higher returns which smallcap can provide if MFs portfolio is properly created whereas HDFC ULIP doesnt provide any fund for Smallcap exposure.

So even after giving all the advantages to ULIP like equal return as post-tax return of MFs (which is not usually the case as in long term MFs post tax returns beat the ULIP returns easily), not counting tax harvesting, etc, ULIP return can't beat MFs return.

And the case of increasing capital gain tax thats in future and you never know govt may start imposing the tax on ULIPs as well.
So we should do analysis as per current scenario not as per future speculations. 😉 😉

So again choosing ULIP or not choosing is personal preference but overall analysis certainly denotes that ULIPs are always inferior than an average return MFs portfolio.

Your further inputs will certainly help me refine my understanding further. So always open to learn more about investment options like ULIPs, etc. You never know you will find a gem in these discussions.

Please throw some light on tax harvesting

 

[desiviru]

How can

Please throw some light on tax harvesting

LTCG upto 1.25L is tax free every year. Some people book only upto this level for tax free return from Stocks/MFs.

 

[shashank08]

How can

Please throw some light on tax harvesting

I can see @desiviru has already provided the perspective and adding more to that:

LTCG in equity - Up to 1.25L is tax free.

Mutual funds and shares selling works in FIFO fashion.

So what I do.. I sell and buy on the same date for the same amount like selling for 1L and buying for 1L on the same day.
I do it till I reach 1.25L of the capital gain in a financial year.

Thats how I can reduce tax outgo on equity investment by selling and buying at the same time. This is called tax harvesting.

Search on youtube and you will be able to find a lots of videos about this.
Why I buy on the same day so that I buy and sell on the same NAV because tax harvesting is useful only when you sell and then buy back the same amount.

Hope this will help.

 

[Rishabh]

MF + Pure Term Plan much better combo than ULIPs any day.
ULIPs are like long term commitment trap & comes with a meagre guaranteed return !!

 

[thanix]

How can

Please throw some light on tax harvesting

Say, if you have solid analysis on long term growth of a company equity or equity MF, you can sell and buy back the same script or equity MF after the LTCG period to the tune of 1.25L gain which becomes tax free gain for that FY and you continue to be invested as part of your strategy.

 

[shashank08]

MF + Pure Term Plan much better combo than ULIPs any day.
ULIPs are like long term commitment trap & comes with a meagre guaranteed return !!

In fact there is one more type of plans in the market.. Guaranteed Return Plans..

Those plans are even worse than ULIP and are being sold like anything..

 

[hender]

I can see @desiviru has already provided the perspective and adding more to that:

LTCG in equity - Up to 1.25L is tax free.

Mutual funds and shares selling works in FIFO fashion.

So what I do.. I sell and buy on the same date for the same amount like selling for 1L and buying for 1L on the same day.
I do it till I reach 1.25L of the capital gain in a financial year.

Thats how I can reduce tax outgo on equity investment by selling and buying at the same time. This is called tax harvesting.

Search on youtube and you will be able to find a lots of videos about this.
Why I buy on the same day so that I buy and sell on the same NAV because tax harvesting is useful only when you sell and then buy back the same amount.

Hope this will help.

Same day buying selling you do for equity or MF or both !!

 

[shashank08]

Same day buying selling you do for equity or MF or both !!

you can do in both wherever your holding is more than an year old..
Either direct shares or equity mutual funds.. so overall you can do this anything related to equity no matter direct share or equity mutual funds..

2 things to consider is

1. investment should more than an year old. if SIPs are there then redeem only till 1 year old SIPs as each individual SIP is counted as a separate investment from capital gain perspective.
2. Buy at the same price or less price as you are selling. If you are buying at comparatively very higher price then you are losing.

 

[hender]

you can do in both wherever your holding is more than an year old..
Either direct shares or equity mutual funds.. so overall you can do this anything related to equity no matter direct share or equity mutual funds..

2 things to consider is

1. investment should more than an year old. if SIPs are there then redeem only till 1 year old SIPs as each individual SIP is counted as a separate investment from capital gain perspective.
2. Buy at the same price or less price as you are selling. If you are buying at comparatively very higher price then you are losing.

LoL,
Am asking about how do you do ?
you do it same day ? is it so !

 

[shashank08]

LoL,
Am asking about how do you do ?
you do it same day ? is it so !

I do selling and buying same day for both direct share and equity MFs.

My MF portfolio is big and old enough that tax harvesting is usually covered by equity MFs.