Why ULIP mis-selling has become rampant ?
Why is there so much mis-selling of ULIP? How to avoid this mis-selling? Who should take ULIP?
The Budget announcement related to provident fund has made salaried professionals concerned about its impact. This is because under the existing tax laws, interest on provident fund (PF) is exempt from tax. However, the Union Budget 2021- 22 has proposed that interest on the employees contribution above Rs2.5 lakh per annum will be taxable from 1 April, 2021, onwards.
Currently, EPF offers interest rate of 8.5%. Considering 30% tax rate along with cess, the post-tax interest works out to 5.8% over Rs2.5 lakh per annum. Though the finance minister has recently hinted at review of tax limit on PF, higher income bracket employees, who are making large contribution to voluntary provident fund (VPF), are worried about its impact. According to tax experts employees with salary of Rs 41 lakh and above will be impacted, assuming basic salary constitutes 50% of the total remuneration.
Considering people are looking for other avenues, is investing in debt funds a good alternative? Pankaaj Maalde, a Mumbai-based financial planner says, “Looking at the current scenario of fiscal deficit, investors should stay away from a long duration debt investment. There is no alternative to EPF/VPF as it gives highest tax-free return in India. Debt funds return is around 5% that is also taxable. The only good options are PPF and Sukanya Samriddhi Scheme (for eligible daughter) where one can deposit Rs. 1.50 lakh p.a.”
Shweta Jain, founder and CEO of Investography says, “Debt funds are a good option for people who are looking for safer avenues. However, unlike PF, here the return isn’t fixed and hence there is lesser interest from people. With PF interest being taxed, it may be more attractive for people looking to invest for more than three years.”
Nippon India Mutual Fund has recently launched Nivesh Lakshya Fund. It is a long-duration debt fund investing in Government of India Securities . The fund is for meeting long-term investment goals over an investment horizon of 10–25 years with liquidity in case of exigencies.