Many investors are being shown glossy presentations that promise 14% returns from Unit Linked Insurance Plans (ULIPs). But Abhishek Kumar, Sebi-registered investment adviser and founder of Sahaj Money, says these projections are far from reality, and he explains why such claims can mislead buyers.
“It’s textbook mis-selling wrapped in a spreadsheet,” , adding that the glossy projection hides several key details.
Kumar explained that ULIP sellers often present a clean chart where the entire premium appears to grow at a high rate. However, this ignores a range of charges that apply to every policy. Premium allocation costs, mortality charges for the life cover, fund management fees, and administration charges steadily reduce the amount invested.
“The calculation assumes 100% of your Rs 10 lakh premium gets invested and grows at 14%. Except that’s not how ULIPs work,” he said.
According to him, once these deductions are included, the real return falls to about 11%, creating a gap of nearly 3% every year. Over long periods such as 15 years, this difference becomes substantial. “That’s not rounding error. That’s real money,” he added.
Another major issue, Kumar says, is the claim that the entire maturity amount will be tax-free.
But this doesn’t hold true for high-premium policies. Current rules say that ULIPs with annual premiums above Rs 2.5 lakh do not qualify for tax-free maturity under Section 10(10D).
“The gains are fully taxable as capital gains. The calculation ignores this entirely,” Kumar said. In the example shown, the premium was Rs 10 lakh per year, making the tax-free claim completely incorrect.
Kumar also pointed out that the illustration violates regulatory guidelines. IRDAI rules allow insurers to show only 4% and 8% return scenarios in their official projections.
“Showing 14% is a screaming red flag,” he said. He believes it is meant to make the product appear more attractive than it really is. “Nobody questions a number that looks ‘official’,” Kumar added.
With ULIPs being aggressively marketed, experts say it is important for investors to understand the actual costs, tax impact, and realistic return expectations.
Kumar’s warning shows the need for greater transparency and careful decision-making before choosing long-term financial products.