Scared of Investment Risk in ULIP?

Millions of investors delay their investment decisions. They fear losing money due to market swings or poor choices. The Securities and Exchange Board of India (SEBI) Investor Survey 2025 shows that many Indian investors avoid market-linked investments due to such concerns, preferring FDs and savings accounts.

However, with bank FDs offering 6.5-7% returns and inflation averaging 5-6%, real returns often remain under 2%. Many investors are not fully aware that ULIPs are designed to let them participate in market growth with built-in risk management tools.

ULIP is a financial product that combines market-linked investments with life cover. You pay a premium, which is split into two uses: insurance and investment. Here is how a ULIP works:/p>

The following 6 built-in features make ULIP investment safe and support the potential for positive returns:

The following data shows that ULIP for risk-averse investors can be a suitable option. You can look at the expected return and risk level to decide which fund type suits your investment needs.

Note: The returns are indicative historical figures and are market-linked. Actual performance may vary, and past performance is not a reliable indicator of future returns.

Fund switches within the policy are allowed without triggering capital gain tax in ULIP. In other products, like mutual funds, switches between equity and debt are subject to capital gain tax. Short-term capital gains (STCG) on equity funds are taxed at 20%, while long-term capital gains (LTCG) are taxed at 12.5%.

Tax-free fund switching allows you to manage your risk exposure safely, saving lakhs on tax in the end. For instance, if you invested ₹4 lakhs and gained ₹1 lakh, your current value is ₹5 lakhs. In a mutual fund, the 20% STCG is taken on the gain (1 lakh), reducing your value to ₹4.8 lakh. While in ULIP, your value of ₹5 lakhs remains as is, irrespective of fund switching.

If you are unsure whether to invest in a mutual fund, PPF, FD, or ULIP, we have compared their key features below to help you choose what helps you meet your investment goals:

*Subject to annual premium ≤ ₹2.5 lakh for policies issued on/after February 1, 2021 (Budget 2021 condition).

*Please note that section 80C is not applicable under the new tax regime.

A well-planned ULIP investment for future should consider your current age, annual income, and risk factors. The general principle is to accept investment-related risks while you are younger and focus on increasing your corpus as you grow older. Ideally, 2-3 years before the policy matures, switching fully to debt to minimise market risk.

For instance, at 25-35 years old, an allocation of 70 to 80% to equity and the rest in debt can be considered. This may be adjusted to a 50:50 allocation between equity and debt during the age bracket of 35-45. Further, decrease the equity investment to 30% and increase debt exposure to 70% when you are 45-55 years of age. After reaching 55 years, you can allocate 80% to 90% in a debt fund, avoiding maximum risk.

Under the Income Tax Act, 1961, ULIPs enjoy certain tax benefits:

• Section 80C Deduction: Under this section, ULIP premiums are eligible for an annual tax deduction of ₹1.5 lakh (not applicable under the new tax regime).
• Section 10(10D): If the annual premium does not exceed ₹2.5 lakh for policies issued on or after February 1, 2021, the mature value is tax-free.
• Tax-Free Death Benefit: The death benefit paid to the nominee is also fully exempt from income tax under Section 10(10D).
• Tax-Free Fund Switches: There is no capital gain tax for fund switches within the policy.
• Budget 2025 Update (GIFT City): For IIO (International Insurance Office) policies issued from Gujarat International Finance Tec-City (GIFT City), the ₹2.5 lakh premium limit for tax-free maturity does not hold.

Small monthly payments help you generate good returns as compounding comes into effect. For better understanding, let’s take an example below:

ULIPs have multiple advantages alongside their several disadvantages, as per your investment strategy. The following outlines for whom ULIPs may be suitable and for whom they may not be.

You can start an Axis Max Life ULIP using the following simple steps:

• Risk Profile: Complete the AXIS Max Life online risk profile to get recommendations on fund allocation.
• Premium Amount: Select the premium to be paid each month or annually. For Section 80C benefits, keep premiums within ₹1,000 to ₹12,500 per month. For Section 10(10D) tax-free maturity, ensure the annual premium stays below ₹2.5 lakh.
• Sum Assured: The sum assured is usually ten times what you pay annually.
• Policy Term: Choose the duration of the policy according to your financial goal; investment tenure of 10 years and beyond is usually recommended.
• Starting Fund Allocation: Choose the initial allocation across a debt fund, a balanced fund, or an equity fund, based on your risk preference.
• Complete KYC: You should provide address and identity proofs, along with other documents.
• Fund Switch Alerts: Review your fund allocation every 6 to 12 months to assess fund performance and actual market conditions in effect and accordingly make appropriate fund switches if required.
• Stay Invested: ULIP's 5-year lock-in period prevents panic selling when market is down.