Last Updated on April 22, 2020 by Gopal Gidwani
Investments can be tricky. While many of you might fear the market risks, the rest of you might aim to grow your funds with the right type of investment tools. If you are new to the world of investment, you might be unaware of the investment vehicle that can be suitable for you. Moreover, the myths and perceptions about investments might not let you make the most of the available investment options in the market. While there can be different investment option, such as Equity Linked Savings Scheme (ELSS), Mutual Fund (MF), and so on, a Unit Linked Insurance Plan (ULIP) can be the right choice for every first-time investor.
Before you choose a ULIP policy, let’s understand its meaning in detail to make informed investment decisions in the future:
What is a ULIP investment plan?
A ULIP investment plan is a market-linked product, which can depend on the performance of the market. In addition to this, a ULIP policy can offer dual-benefits, which can allow you to receive the benefits of investment and insurance under a single integrated plan. While ULIP investment can allow you to get involved in the capital market, ULIP insurance can look after the financial well-being of your loved ones in your absence.
A ULIP policy has undergone many changes. Due to its evolution in the market, it can be crucial to understand the new-age features and benefits of a ULIP policy. Therefore, let’s begin by understanding the top three features offered by a ULIP policy based on your evolving needs and requirements:
1) Long lock-in period
The lock-in period can be a stipulated period of a ULIP investment during which it might not allow you to liquidate your assets. Under a ULIP policy, the lock-in period is five years. If you do not withdraw your funds before the completion of five years, your money can earn good returns due to compounding returns on investment
2) Multiple fund options
There can be two main types of ULIP funds available under a policy. When you select a ULIP investment plan, you can choose between the following types of funds:
a) Equity funds
Equity funds can be risky since they are linked to the market. Due to the high-risk involvement, you should choose equity funds based on your risk appetite. If you have a high-risk tolerance, you can park your funds under equity funds of a ULIP investment plan.
b) Debt funds
Debt funds can be a less-risky fund option under a ULIP policy. These funds can be beneficial after you cross specific milestones, such as marriage, parenthood, retirement, and so forth. As a risk-averse investor, you should choose a debt fund when your risk tolerance recedes.
3) Flexible premium payment mode
The premium can be an inevitable part of your ULIP policy since it provides you with a life cover. In exchange for the life cover, you should pay the premium within the selected duration. Since a ULIP policy is flexible, your insurer can let you make the premium payment based on your convenience i.e. quarterly, monthly, half-yearly, and annually.
Benefits of ULIPs
Based on these features, you can receive the ULIP benefits that can allow you to achieve your life goals, such as purchasing a new house or a car, funding your child’s education, and so on. Let’s go through the top three benefits of a ULIP policy as mentioned below:
1) Higher accumulation of wealth
The long lock-in period can ensure that your hard-earned savings grow into a large corpus. If you stay invested until the completion of the lock-in period, your insurer can offer loyalty additions on top of your accumulated wealth after maturity.
2) Better returns
The generated funds can depend upon your risk appetite and investment goals. Therefore, consider your risk appetite closely and invest in either equity funds or debt funds accordingly. While equity funds can provide you with relatively high returns, the debt funds can garner low returns. In addition to this, you can move your assets from equity funds to debt funds based on market fluctuations.
3) Tax benefits
One of the major advantages of a ULIP policy can be the income tax deduction on premium and exemption on maturity, according to Section 80C and Section 10(10D) of the Income Tax Act, 1961. While Section 80C can let you claim a deduction of up to Rs. 1.5 Lakh on your taxable income, the maturity benefits or death benefits are tax-free as per provisions Section 10(10D).
Since there are different options of a ULIP policy available in the market, you might be unable to understand how to choose a suitable ULIP policy for you. To simplify the selection process at the time of purchase, let’s look at these easy tips mentioned below:
a) Choose a reputable insurance company
b) Compare multiple ULIP options in the market
c) Use a ULIP calculator to receive an estimate of the premium amount
d) Consider your risk appetite
e) Buy a ULIP policy online to ensure a hassle-free process
f) Read the policy document carefully after the purchase of a ULIP plan
g) Consult a financial expert if you are still unclear about ‘why should I invest in a ULIP policy?’
To sum up, a ULIP investment can be a value-addition to your financial portfolio. In addition to this, a ULIP policy can be an affordable, flexible, convenient, as well as a transparent form of investment. With its new-age features, you can reap the maximum benefits of a ULIP policy until the on-going tenure.