19/01/2016 2:27 PM IST | Updated 31/10/2016 7:52 PM IST

Why ULIPs are a good tax saving instrument

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Taxes Written On Diary

It's that time of the year when all of us seem to be planning on how to save tax. Where to invest? How much to invest? What to choose from? Multiple questions, contradicting advice and too many options often leave us confused. And time is always running out. While tax saving is one of the first and foremost investment everyone should do, it's usually a decision we take at the fag- end of the year. With a looming deadline, we tend to forget and weigh every option and measure the benefits of each.

It's important that we start our year by planning on how to save tax better. The best way to do so is by calculating these key things- How much tax you need to save; What are your investment needs; And lastly, identifying where you stand in terms of saving tax. Be it for a fresher or a working professional over the years, we all have a tax component that we can save for ourselves. It's important to understand how big or small that value is. Basis this one can then choose the kind of tax saving instrument that best suits you.

While PPFs, Insurances, ELSS all help in tax saving, a smarter option these days is to invest in ULIPs (Unit Linked Insurance Plans). ULIPs as you are aware are investment products that offer savings with insurance. Here are a few reasons why you must invest in ULIPs as a tax saving instrument.

ULIPs are not costly

The annual charges of ULIP now are 3% for a 10 year lock in and 2- 2.5% for more than 10 years of holding. Low cost ULIPs today have much lower charges and thus are a good option to look out for.

Invest Smart with ULIPs

When investing in ULIP, one must select a ULIP plan basis the funds you have and your objective. You can invest in a conservative fund by settling for a debt-oriented fund or opt for an aggressive fund if your needs demand so. It also gives you an option for selecting a mix of equity and debt fund known as a balanced fund.

Switching will not cost anything

If at any time of your investment you feel that you need to switch to another fund, you can easily do so in a ULIP. Unlike other investment tools where making a switch mid- way through the term of the fund is either not possible or results in tax implication, ULIPs now offer that freedom. There is no tax implication on gains made when making such a switch.

ULIPs have been in market since long and have been offering good returns. This modern and traditional investment mix offers flexibility of switching funds along with easy withdrawal for your current requirements making it a necessary investment tool in your financial planning. If you do not wish to get into the hassles of individual planning, a ULIP with few riders may be the solution.

One such plan you can invest in is the HDFC Life Click2Invest. A modern day ULIP offering with tax saving benefits for consumers, it's a smart choice to invest in. C2I has zero allocation charges with only FMC & Mortality charges that are applicable. One can also choose from 8 fund options.