ULIP or a Unit Linked Investment Plan is one of the most popular life insurance products for wealth creation. The plan offers dual benefits of investment and insurance along with tax benefits. However, multiple factors need to be considered to get maximized returns on your ULIP Investment.
Guaranteed Tax SavingsUnder sec 80C & 10(10D)
₹1 CroreInvest ₹10k Per Month*
Zero LTCG TaxUnlike 10% in Mutual Funds
Top performing plans with High Returns*
Invest ₹10K/month & Get ₹1 Crore returns*
In this article, we will discuss simple strategies that can help you accumulate wealth through ULIP investments.
To make the most out of your ULIP Investments, all types of investors can follow some easy strategies either by themselves or with the help of a professional. These are:
ULIPs have a lock-in period of five years making them suitable to achieve long term investment plans. By staying invested for 10 to 15 years, the power of compounding can be utilized to create a huge corpus.
Equity and debt funds have different characteristics. While equity schemes are considered high-return and high-risk, debt funds are the opposite. ULIP investments give you the option to choose funds based on your risk appetite.
Hybrid funds create a balance between equity and debt. ULIP investments have only 40% equity exposure, making them a comparatively safer investment option.
ULIPs have a compulsory lock-in period during which you cannot surrender the policy or delay premium payments. If it happens, the investment is moved to a discontinued fund.
The discontinuance fund does not generate any returns. The IRDAI (Insurance Regulatory and Development Authority) also charges "discontinuance fees" for the same. To receive the best returns on ULIP investments, it is crucial to keep up with premiums payments.
ULIPs offer policyholders the opportunity to withdraw a portion of their funds. To be eligible for partial withdrawals, you must remain invested until the ULIP lock-in period (5 years) is over.
If you make partial withdrawals before the end of lock-in, you may not receive the full maturity payout. Additionally, you will miss out on potential investment growth over time through compounding.
Unit Linked Investment Plans (ULIPs) offer free switches between funds to manage portfolio asset allocation effectively. It is best to spread investments across different asset classes to get maximum returns and reduce exposure to market risks. Optimizing asset allocation can also help determine the risk-to-return ratio of your current portfolio.
Let's understand this with an example.
Mr. Sharma, a 32-year-old professional, has invested in a ULIP plan for 30-years. He maintains 100% of his ULIP investment in equity schemes. Let’s say after 5 to 7 years, as Mr. Sharma has children and increased financial responsibilities, he wants to reduce his equity exposure.
By switching between equity and debt fund, he can optimize his portfolio to get maximum returns. While equity will help him aggressively grow investments, debt will help keep the market risks in check.
The primary motive to start investment is wealth creation and saving for future investments like education, housing, marriage, and retirement. Financial goals are crucial in defining one's risk appetite for long term investment.
For instance, investing in ULIP child education plans can demand frequent fund switches to build a corpus in the initial years. It is an effective way to align investment with future goals.
The lock-in period of ULIP plans encourages the habit of saving and helps generate compounding returns on long-term investments. Some insurance companies also offer additional loyalty benefits to investors.
Loyalty benefits involve paying back all charges that were levied at the time of activation. Charges included are policy administration charges, fund management charges, surrender charges, and mortality charges.
It is essential to regularly review and monitor your investment plan to keep gains and losses in check. The performance of financial markets can be unpredictable. Regular review and rebalancing of funds can help you align ULIP investments with your future financial goals.
ULIPs have gained popularity in recent years due to their potential to provide higher returns and offer tax benefits. Here are some of the benefits of investing in Unit Linked Insurance Plans:
Dual benefit of insurance and investment: ULIPs provide the dual benefit of insurance and investment. The insurance component of the plan provides financial protection to the policyholder and their family in case of an untoward event like death or disability. The investment component of the plan provides an opportunity to generate wealth over the long term.
Flexibility and customization: ULIPs offer flexibility and customization to the policyholders. Policyholders can choose from various funds to invest in depending on their risk appetite and investment objectives. They can also switch between funds based on market conditions and their investment goals.
Potential for higher returns: ULIPs have the potential to offer higher returns compared to traditional investment products like fixed deposits or traditional life insurance plans. Since ULIPs invest in equity and debt markets, they provide an opportunity to earn higher returns over the long term.
Tax benefits: ULIPs offer tax benefits under Section 80C of the Income Tax Act. Policyholders can claim a tax deduction of up to Rs 1.5 lakh on their premium payments. Additionally, the maturity amount and death benefit received from the plan are tax-free under Section 10(10D) of the Income Tax Act.
Goal-based investing: ULIPs allow policyholders to invest based on their specific financial goals like retirement planning, child’s education, or buying a house. This helps in achieving the desired financial goals within a specific time frame.
Cost-effective: ULIPs have become more cost-effective in recent years due to regulatory changes. The charges on ULIPs are now capped, and policyholders can easily compare them across different plans. This ensures that the policyholder gets the maximum returns from their investment.
ULIPs make a perfect investment choice when it comes to maximizing returns with market exposure and also keeping up the protection portion with life insurance cover. It encompasses financial protection for your family along with the option to grow your funds. Not only that ULIPs are versatile in terms of being an investment as well as an insurance plan, but it also helps you in saving tax with controlled market risk.
*All savings are provided by the insurer as per the IRDAI approved insurance
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
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