How ULIP can build a Good Retirement Corpus

Retirement planning becomes the primary concern of an employee in his 40s or 50s. People in the private sector are compelled to work till their late 70s without a retirement plan. A retirement plan is essential for an employee, and he should start planning in his 30s to enjoy maximum benefits from an investment scheme. Investors are shifting from traditional insurance plans to ULIP (Unit Linked Insurance Plan) due to the value-added features and benefit the ULIP scheme offers.

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58.9 Million
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Top ULIP Funds
Fund Name
AUM
Returns (in %)
3 Year
5 Year
10 Year
11,839 Cr
Returns
21.83%
Returns
23.81%
Highest Returns
Returns
19.95%
Get Details
1,772 Cr
Returns
23.15%
Returns
27.3%
Highest Returns
Returns
19.47%
Get Details
6,136 Cr
Returns
26.84%
Returns
27.87%
Highest Returns
Returns
18.81%
Get Details
2,984 Cr
Returns
21.78%
Returns
23.76%
Highest Returns
Returns
17.76%
Get Details
4,172 Cr
Returns
21.74%
Highest Returns
Returns
20%
Returns
17.43%
Get Details
Fund Name
AUM
Returns (in %)
3 Year
5 Year
10 Year
247 Cr
Returns
11.88%
Returns
13.92%
Highest Returns
Returns
11.99%
Get Details
352 Cr
Returns
12.26%
Returns
12.56%
Highest Returns
Returns
11.38%
Get Details
526 Cr
Returns
9.79%
Returns
10.72%
Highest Returns
Returns
10.34%
Get Details
837 Cr
Returns
11.67%
Returns
11.81%
Highest Returns
Returns
10.23%
Get Details
22 Cr
Returns
12.6%
Highest Returns
Returns
11.89%
Returns
10.17%
Get Details
Fund Name
AUM
Returns (in %)
3 Year
5 Year
10 Year
494 Cr
Returns
16.43%
Returns
17.28%
Highest Returns
Returns
15.3%
Get Details
242 Cr
Returns
6.94%
Returns
7.91%
Returns
8.81%
Highest Returns
Get Details
786 Cr
Returns
5.4%
Returns
6.88%
Returns
8.1%
Highest Returns
Get Details
302 Cr
Returns
5.86%
Returns
6.8%
Returns
7.79%
Highest Returns
Get Details
465 Cr
Returns
5.1%
Returns
6.93%
Returns
7.78%
Highest Returns
Get Details

Let us discuss how ULIP helps an individual build a significant retirement corpus. 

What are ULIP Plans?

ULIP is an insurance cum investment plan that comes with dual benefits of insurance coverage and wealth creation from investments. It offers the policyholder an opportunity to invest in the market of his choice. ULIP also helps an investor to beat inflation by providing significant returns on the investment. Hence, the policyholder enjoys two benefits in a single premium plan. First, half a portion of the policyholder's fund moves towards providing life coverage paid to his family in an unfortunate event of death. In contrast, with the remaining amount, the policyholder invests in the financial instrument to earn good returns. 

How is ULIP Beneficial for Retirement?

ULIP is undoubtedly a beneficial tool for retirement due to the following reasons:

  1. Long-term investment

    Retirement is long-term planning which a policyholder should commence in his 30s or 40s. Similarly, ULIP is a long-term investment scheme that provides sufficient returns over a long-term policy. The investment grows on the basis of compounding power, which generates significant rewards during the tenure. Hence, the investor may cause a considerable bonus in the long-term planning to meet retirement expenses and beat inflation. 

  2. Fund switching option

    The fund-switching option is one of the best features of ULIP. An investor may switch from one fund to another fund. How often he wants to reverse the fund in a year is at his discretion. For example, an investor who has invested a portion of his fund in equity may shift to debt if he wishes to lower his risk. Equity involves more risks compared to debt. However, it also provides a significant return compared to the debt instrument. So if the policyholder has a high-risk appetite, he may stay in the equity or switch to debt accordingly. In addition, if he needs clarification in both cases, he may avail another option of a balanced fund, the amalgamation of equity and debt. The investor should make the conscious switch as per the status of the market. For instance, if the equity market is incurring losses, he must shift his fund to debt which will lower the risk but provide a reasonable return. An investor following this technique or method will likely build a good corpus for retirement. 

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  3. Life coverage

    During the course of his life, an individual faces different kinds of health-related issues. Any invasive or long-term treatment may take a massive amount to cover medical expenses. Thus, an individual needs to safeguard his financial interest. In addition, it is also essential to meet the financial requirement of family members in the absence of a guardian. ULIP plans to provide every means to cover the expenses of family members by protecting their economic interests. Further, the amount received from the plan can be used to cover various expenses such as wedding costs, education fees, medical expenses, and many more. 

  4. Tax Exemption

    The investor may accumulate tax-free wealth from ULIP plans. He may invest as much as he prefers and can build a massive corpus of tax-free wealth. The amount receivable on maturity will be exempted from tax under section 80C of the Income Tax Act 1961. In addition, the premium paid by the investor will be deducted from the taxable income under sec 10 (10D) of the Income Tax Act. 

  5. Wealth booster option

    The returns on the investment are likely to grow the wealth of the investor. The ULIP provides transparency to the investor. Hence, the investor may keep track of his investment and track profit and loss in a particular market. 

How to Plan the Retirement through ULIP?

An individual may plan his retirement through ULIP by applying the following factors:

  1. Start early

    In order to build a good corpus for retirement, a policyholder should start early. He must begin investing in his 30s. The long-term investment option adds more value to the scheme and generates a substantial return over a long-term policy. Hence, the individual should take optimum advantage of the ULIP plan.

  2. Select the right fund option

    Selecting an appropriate fund option to invest and earn good returns is evident. However, it exclusively depends on the risk appetite of an individual to choose a fund instrument. For example, equity offers a high reward, but it also consists of elevated risk. On the other hand, debt offers low risk with low returns. In contrast, the balanced fund offers moderate risk with low to moderate returns, which can be higher than debt. 

  3. Increase the premium

    With the hike in income or salary, the investor must consider increasing the premium to add more bonuses on the scheme's maturity. The premium increase will ensure the maximum return at the end of the policy term. 

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Conclusion

UILP is an incredible retirement tool that can be used by every kind of investor. It offers several benefits and desired results at the maturity period. Most plans do not provide transparency to the policyholder. However, with ULIP, an investor may maintain his investment portfolio. In addition, he may also make a partial withdrawal at the end of the 5-year ULIP lock-in period. The ULIP plan offers booster additions, loyalty, and maturity rewards/bonuses for staying invested long-term. Hence, as mentioned above, it can be said that ULIP builds a good corpus for retirement.

FAQ's

  • What is UILP?

    ULIP (United Linked Insurance Plan) is a scheme that offers insurance policies and investment benefits for a single premium.
  • What is the lock-in period in the ULIP plan?

    Before 2010, the lock-in period under the ULIP plan was three years that later increased to five years by bringing an amendment by IRDAI.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
+Returns Since Inception of LIC Growth Fund
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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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