Many investors today are being shown polished sales decks that promote Unit Linked Insurance Plans (ULIPs) as products capable of delivering 14% annual returns, creating an impression that they can outperform most market-linked instruments. However, according to Abhishek Kumar, a Sebi-registered investment adviser and founder of Sahaj Money, such projections are not only unrealistic but are built on selective assumptions and omissions that hide the true cost and risk of the product. Kumar says the 14% projection looks scientific on paper but falls apart the moment real-world deductions and tax rules are added to the calculation.
Kumar explains that the projected returns are derived from a chart that assumes the entire premium paid by an investor grows at a fixed rate over time. In reality, ULIPs do not invest 100% of the premium. Before the premium is deployed in the market, multiple charges are deducted, including premium allocation charges, mortality charges for insurance coverage, fund management fees, and administrative costs. These charges reduce the investible amount every year, and therefore the final return. “The spreadsheet assumes your entire ₹10 lakh is compounding. That’s just not how ULIPs operate,” Kumar said.
He points out that once all costs are factored in, the effective return can drop from the projected 14% to somewhere around 11%, leaving a sizeable gap of nearly three percentage points annually. Over a long horizon—say 15 years—that compounding gap can add up to several lakhs of rupees lost. Kumar calls this not a mere rounding error but a substantial erosion that buyers do not realise until much later because the projections never show the drag caused by these charges.
Another misleading tactic, Kumar says, involves tax benefits. Most ULIP marketing material aggressively claims that the entire maturity corpus is tax-free, positioning the product as superior to mutual funds. But tax laws have changed. Under current rules, if the annual ULIP premium exceeds ₹2.5 lakh, the maturity amount does not qualify for exemption under Section 10(10D). In such cases, gains are taxed as capital gains. In many of the presentations Kumar saw, the investor was contributing ₹10 lakh per year—an amount that makes the “completely tax-free” claim factually incorrect. Yet this tax impact is never reflected in the rosy projections shown to buyers.
Kumar also notes that many of these 14% return illustrations breach IRDAI guidelines, which clearly state that insurers are allowed to illustrate returns only under two scenarios—4% and 8%. Showing a 14% scenario is in direct violation of these norms and is designed to make ULIPs appear superior to traditional investments. According to Kumar, most prospective buyers do not question these illegal projections because the numbers look official and come packaged with professional-looking graphs.
With ULIPs currently pushed aggressively across the market, experts are urging investors to look beyond marketing slides and evaluate the real mechanics of the product. They recommend focusing on actual post-charge returns, liquidity restrictions, tax implications, and long-term suitability rather than being swayed by glossy charts and unrealistic compound-growth illustrations. Kumar’s remarks ultimately serve as a reminder that financial products involving insurance and investment should be chosen only after understanding costs and regulation—not sales promises.
