For most Indians, investing is about securing life’s milestone. Whether it’s planning for retirement, children’s education or building a safety net, every investment carries a long-term dream. The success of these dreams depends on staying invested long enough for compounding to work.
That’s where new-age ULIPs (Unit Linked Insurance Plans) have found renewed relevance. They encourage the very thing that drives wealth creation: long-term, consistent investing. Once criticised for being opaque and expensive, ULIPs have evolved into efficient, transparent, and tax-smart financial products. With lower charges, complete visibility and built-in life cover, they are reshaping how serious investors approach long-term wealth creation.
Tax-free advantage
Among market-linked investments, taxation often decides how much of return you actually keep. While equity mutual funds (MFs) attract 12.5% long-term capital gains (LTCG) tax on profit above ₹1.25 lakh, ULIPs maturity proceeds are totally tax-free under Sec 10(10D), provided annual premiums stay within ₹2.5 lakh and the sum assured is at least 10 times the premium.
Over decades, this advantage adds up significantly. For instance, an investor allocating ₹10,000 a month for 10 years and staying invested for 20 years could see a ULIP corpus of about ₹85–86 lakh at a 15% market return. A similar direct MF might yield about ₹95 lakh pre-tax, but after paying LTCG tax, the take-home amount drops to about ₹84 lakh. Compared with regular MFs with higher expenses, the post-tax gap can widen to almost ₹10–12 lakh.
To sum up, a long-term investor can expect comparable or even better post-tax returns if he/she makes the right investment choices. Moreover, the gap in returns can turn wider if one considers the realistic possibility of a rise in LTCG tax rates 10 or 20 years down the line.
Cost revolution
This ULIP transformation is the result of steady regulatory reforms and the rise of digital distribution. A decade ago, ULIPs carried heavy front-loaded cost even as high as 5–6% a year. Those days are gone.
Today, fund management charges (FMCs) for online ULIPs stand at about 1.25–1.35%, almost identical to the 1.2% typical of regular MFs and tad higher than the 0.5% charged by direct funds. The leaner cost structures put ULIPs on par with market-linked instruments in efficiency, while retaining tax advantages.
Discipline, an edge
ULIPs’ real strength lies in how they keep investors invested. With a mandatory lock-in period of five years, they promote long-term discipline, something even seasoned investors often struggle to maintain with open-ended products.
In a market prone to short-term speculation, ULIPs shift focus to time in the market rather than timing it. This builds consistency, cuts impulsive decisions and undisturbed compounding to work undisturbed. Over time, this behaviour turns the biggest differentiator between erratic savers and successful wealth creators.
It may surprise many in other market-linked instruments such as MFs, only a single-digit percentage of investors stay invested beyond five years. ULIPs, however, encourage long-term discipline and enable superior wealth creation via compounding.
Dual protection
Beyond returns, ULIPs combine wealth creation with life insurance, ensuring even in an unforeseen event, your family’s financial goals remain secure.
In case of any unfortunate event, a ‘Waiver of Premium’ option kicks in ensuring long-term goals such as children’s education or spouse’s financial security continue to be fulfilled. ULIPs continue to be the only instrument that offers such a powerful family protection along with market-linked returns.
Way to stay invested
Today’s investors, especially younger ones, are far more tax-aware and goal-oriented. They recognise true wealth creation comes from consistent, efficient investing rather than chasing short-term returns. ULIPs align perfectly with this thinking, offering an integrated solution that merges protection, tax efficiency and long-term discipline. With the recent GST cut, ULIPs have become even more affordable. They deliver simplicity, focus and fiscal prudence, qualities resonating with India’s emerging investor generation. For those believing wealth is built by staying the course, new-age ULIPs are a disciplined and tax-efficient path to long-term prosperity.
(The writer is head of Investments, Policybazaar.com)
Published – October 27, 2025 05:04 am IST
