Should I stop my equity SIPs and move to ULIPs to avoid the 12.5% LTCG tax?
Published 22 September 2026
I am 31 and currently investing ₹20,000 a month in direct equity mutual funds.
With the LTCG tax now at 12.5%, I am seeing a lot of ads about modern ULIPs offering zero tax on maturity.
Does it actually make mathematical sense to switch my SIPs to a ULIP just to save on taxes?
With the LTCG tax now at 12.5%, I am seeing a lot of ads about modern ULIPs offering zero tax on maturity.
Does it actually make mathematical sense to switch my SIPs to a ULIP just to save on taxes?
The tax advantage of modern ULIPs is absolutely real but it comes with a very strict ceiling you need to watch out for. Under Section 10(10D) the entire maturity amount of a ULIP is completely tax-free as long as your total yearly premium stays under ₹2.5 Lakhs. If you cross that ₹2.5 Lakh threshold in a year the ULIP gets taxed exactly like a mutual fund.
That instantly kills the advantage of ULIPs. For someone investing ₹1 Lakh annually for 10 years assuming a 12% return. A direct mutual fund would grow to about ₹19 Lakhs before taxes.
Once you deduct the 12.5% LTCG tax your final corpus drops to around ₹18 Lakhs. Now take a low-cost ULIP like HDFC Click 2 Wealth which refunds mortality charges and gives a 1% bonus in the first five years. Because there is zero LTCG tax your final post-tax corpus sits at ₹18.25 Lakhs.
It actually beats the direct mutual fund slightly while also giving you a ₹10 Lakh life insurance cover for free. But you have to remember that mutual funds give you complete liquidity. ULIPs come with a hard 5-year lock-in period where you cannot touch the money without big penalty.
If you are comfortable locking away your money for 5 years and keeping your premiums under that ₹2.5 Lakh limit then these new low-cost ULIPs are a very viable alternative to mutual funds.
Disclaimer: All information shared above are strictly for educational and informational purposes only. It should not be construed as financial or investment advice.
That instantly kills the advantage of ULIPs. For someone investing ₹1 Lakh annually for 10 years assuming a 12% return. A direct mutual fund would grow to about ₹19 Lakhs before taxes.
Once you deduct the 12.5% LTCG tax your final corpus drops to around ₹18 Lakhs. Now take a low-cost ULIP like HDFC Click 2 Wealth which refunds mortality charges and gives a 1% bonus in the first five years. Because there is zero LTCG tax your final post-tax corpus sits at ₹18.25 Lakhs.
It actually beats the direct mutual fund slightly while also giving you a ₹10 Lakh life insurance cover for free. But you have to remember that mutual funds give you complete liquidity. ULIPs come with a hard 5-year lock-in period where you cannot touch the money without big penalty.
If you are comfortable locking away your money for 5 years and keeping your premiums under that ₹2.5 Lakh limit then these new low-cost ULIPs are a very viable alternative to mutual funds.
Disclaimer: All information shared above are strictly for educational and informational purposes only. It should not be construed as financial or investment advice.
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