Should I relook at ULIPs to save LTCG tax?

Now that the ULIP is the only way to avoid capital gain tax, should we relook/prefer ULIPs to mutual funds? Since ULIPs also invest in markets, the returns should broadly be in line.
-- Shashwat Goswami

Veena Malgonkar, certified financial planner, KM Wealth Solutions, responds:

I still believe that insurance and investing should not be mixed. Buy a term insurance cover for your protection needs and invest the rest of the money in mutual funds. Capital gain tax cannot be a criteria for making an investment decision.

First step is to determine your insurance needs and take adequate cover through a term insurance - which is the cheapest way of protecting your family. Do consult a financial adviser for this.


The main reasons to invest in mutual funds are:

1. Over the long term, the mutual funds have consistently delivered better returns than ULIPs.
2. You can get stuck in a ULIP that is underperforming. You have much more flexibility in mutual funds.
3. Expenses are opaque in a ULIP - for mutual funds it is much more transparent.