Among different types of assets, whether they are financial or physical, equity investments have given the highest returns over the long term. This is the reason why equity constitutes a major part of the portfolio of most investors. While it is a fact that equity investing is risky, in long-term investing the effects of risk go away.
There are many types of equity related products available in the market, but they are not all the same. They differ not only in terms of features, but also in terms of purpose and risk of exposure. For example, mutual funds are an investment vehicle and do not provide insurance, but unit-linked insurance plans have both investment and insurance components. Apart from this, the tax rules applicable to these products are also different. For example, capital gains tax is based on the duration of the holding. So for stock and equity-oriented mutual funds, long duration is defined as more than 1 year, but for ULIPs this parameter is not applicable.
Taxes reduce the total return you can get from a product. Add to this the fact that different equity assets attract different tax rules, an investor should also look at the suitability of the investment in terms of taxes. Here’s a look at what the different taxes are.
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