LIC MF Unit Link Insurance Scheme Should you invest?
You might be seeing an advertisement on major financial websites about LIC MF Unit Linked Insurance Scheme (LIC MF ULIS). Many of the investors are getting confused thinking whether this is a mutual fund scheme or Unit Link Insurance Plan. This plan is from LIC Mutual Fund AMC. It comes with several terms and conditions and little complicate to understand. What is this LIC MF ULIS all about? Do we have tax benefits for investing in LIC MF ULIS? What are the hidden factors in this MF / ULIS Scheme? Should you invet in LIC MF ULIS?
Overview about LIC MF Unit Link Insurance Scheme (LIC MF ULIS)
LIC MF Unit Linked Insurance Scheme (ULIS) is an open ended mutual fund scheme which is designed to generate long term capital appreciation along with offering tax benefits u/s 80C of the income tax act. It also provides additional benefit of a life cover and free accident insurance cover. Means this is a mutual fund scheme along with providing risk coverage for life.
Features of LIC MF ULIS
The following are the key features of LIC MF ULIS:
There is growth in investment being an Equity Oriented Hybrid Fund
There is guaranteed bonus on maturity
It provides Life Insurance cover upto Rs. 15 Lakhs from 12-60 years of age (subject to maturity at 70)
One can avail income tax benefit on investment u/s 80C for the investment done in this ULIS scheme.
Auto risk cover is available upto age of 70 years. There is no fear of lapsation if premium of one full year is paid and balance is above Rs. 5,000 in portfolio.
What are the terms of investing in this LIC ULIS Plan?
There are two options available in this scheme, single premium or regular contribution.
1) For regular contribution, one can opt for monthly, quarterly or half-yearly intervals. Under each of these options, investment is under Dividend Reinvestment Plan. In regular contribution scheme, the tenure would be 10 years or 15 years.
2) In single premium scheme, the fund can be invested either for 5 years or 10 years.
What is the load structure in LIC MF ULIS?
There is no entry or exit load for this plan. It has lock-in period of 3 years. In simple terms it is similar to tax saving ELSS scheme.
What are minimum and maximum investments in LIC ULIS?
In single premium option, the minimum investment in LIC ULIS is Rs. 10,000 and thereafter in multiples of 1,000 under both 5 year and 10 year term.
In regular contribution option, the minimum investment is Rs 10,000 under 10 year and 5 year term. However, minimum SIP value is Rs 1,000 monthly and Rs 3,000 quarterly.
What are the income tax benefits available in LIC MF ULIS?
At the time of investment, the money so invested in LIC MF ULIS is available for tax benefits u/s 80C of the Income Tax Act, 1961.
At the time of distribution, the income distributed by the scheme will be exempt from income tax u/s 10(33) of IT Act in the hands of investors. Capital Gains Tax Benefits u/s 48 and 112 of the Income Tax Act, 1961 are available. There are many life and accident insurance benefits also.
In case of failure to pay contribution, according to Sec. 80C(5)(ii), if participation in ULIS fails due to failure in paying contribution, by not reviving the participation, before contributions have been paid for five years,
- a) No deduction is allowed to be paid in such previous year.
- b) The aggregate amount of the deductions of income so allowed in respect of the previous year or years preceding such previous year, shall be deemed to be the income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year.
Is there any flexibility to change to other funds within LIC MF?
Yes, the scheme offers flexibility to switch among the various other schemes and options offered by LIC Mutual fund, keeping in mind the changing investment needs.
LIC MF ULIS Vs ELSS Tax Saving Mutual Fund Vs Balanced Fund
Lets compare LIC MF ULIS with ELSS fund and balanced fund.
Investment objective: LIC ULIS invests minimum of 65% and maximum of 80% in equity and balance in debt segment. Even ELSS funds and Balanced funds would invest similar amounts in equity and debt.
Tax Benefits: Income tax benefit u/s 80C is available in LIC MF ULIS as well as in ELSS Tax Saving Funds. 80C benefits are not available in balanced funds.
Risk Cover: Insurance Risk coverage is available in LIC MF ULIS, however not available in ELSS funds or balanced funds.
Simplicity: Balanced funds and ELSS Funds are easy to understand and simple to invest. However, LIC MF ULIS is complicated with so many terms and conditions.
How is the performance of LIC MF ULIS?
Here is the performance of this MF ULIS Scheme compared to ELSS funds average returns and balance funds average returns.
LIC MF ULIS gave 12% returns in last 1 year compared to 12% returns at Balanced fund category level and 18% average returns from ELSS Category.
LIC MF ULIS gave 8.3% annualized returns in last 3 years compared to 12% average returns at Balanced fund category level and 14% average returns from ELSS Category.
LIC MF ULIS gave 11.6% annualized returns in last 5 years compared to 16% average returns at Balanced fund category level and 19% average returns from ELSS Category.
LIC MF ULIS gave 6% annualized returns in last 10 years compared to 11% average returns at Balanced fund category level and 12% average returns from ELSS Category.
Hence we can conclude that LIC MF ULIS is under performance compared to other benchmark mutual funds.
Should you opt for LIC MF ULIS?
This product has a combined benefit of mutual fund investment with life and insurance cover. The risk of investing in this fund is moderately high as it can invest in equity and equity related instruments to a minimum of 65% and maxmum of 80%. The rest is invested in debt or money market. Means this is like ELSS Tax Saving Mutual Fund along with insurance risk cover for life. This is an underperformer MF compared to its benchmark mutualfunds. Like I keep saying, one should not club insurance and investment. This mutual fund ULIS comes with several terms and conditions. It is not simple. One can take adequate term insurance plan and invest balance in a good mutual fund. Stay away from such funds which are being attracted with advertisements only.
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