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ULIP vs Term + MF
ULIPs bundle insurance + investment but charge 2-3% annually. Splitting into pure term insurance (cheap) + an index MF (low expense) usually wins over 20 years.
Post all charges, ~8-10% typical.
Equivalent term cover; rest invested in MF.
Index fund: ~12% historical.
ULIP corpus
Term + MF corpus
Term + MF wins by ₹26,03,330 over 20 years.
FAQ
Why does Term + MF usually beat ULIP?
ULIPs charge 2-3% annually plus 5-9% allocation charges in years 1-5. A direct index MF charges 0.1-0.5% expense ratio. Over 20 years, the gap compounds to 30-50% of corpus.
Are ULIP gains tax-free?
Pre-Budget 2021 ULIPs (premium ≤ 10% of SA): yes, fully tax-free. Post-Budget 2021 with premium > ₹2.5L/yr: gains taxed like equity (LTCG 12.5%, STCG 20%).
Should I surrender my existing ULIP?
After 5 years (lock-in), yes if returns are clearly underperforming index by 3%+ annually. Switch the corpus to direct index MF and buy term insurance separately.