It is important to understand what ULIP actually is before deriving any conclusion about it. Any financial product that interacts with the market directly or indirectly has a risk factor attached to it. Therefore, no one can deny the fact that investment in ULIP bears certain risks, but at the same time, you need to understand the return percentages, policy guidelines, features, and benefits of this investment product.
If you define ULIP in simple terms, then one can say that it is an insurance plan with various options of investing in the market products like Mutual Funds, Equities, debts, etc. Further, ULIP does not mean investment only in mutual funds, but in a variety of investment options that are managed by the insurance provider.
ULIP = Insurance + Investment in Financial market
The focal point to define the ULIP returns as a long-term investment option (say, ULIP Returns in 10 years), is that the performance of ULIP investments depends on the performance of the investment strategy you pick. In the case of equity funds, the stock market performance is going to be the major decider. It is difficult to predict the growth of this market in the long run. Thus, the return on ULIP policy totally depends on the portfolio that you are managing and growing gradually by taking up good ULIP Plans and managing a set of best performing ULIP funds.
Financial Market = Investing with market trends + Risk Bearing Capacity
How much ULIP return in 10 years can be expected?
The ULIPs return percentage depends on how you have organized your investment portfolio and whether you have invested in the best performing ULIP Funds. As the investment part of ULIP deals with the market, it is tough to predict a fixed return. For example, if you pay a premium of ₹10,000 per month for a span of 5 years, then you will be investing a sum of ₹6 lakhs and get 7.4 lakhs at the time of maturity with an interest rate of 8% per annum (average ULIPs return percentage). This is just an estimation - the actual numbers may vary based on numerous factors. It should be noted that Sensex has given approximately 10% return between 2010-2020. Similarly, a ULIP return in 10 years can prove to be a good investment if you manage things as per the market trends.
Tax on ULIPs:
If you talk about ULIPs under 80C under the Income Tax Act (IT Act) of 1961, then it is a great investment tool as you get considerable tax exemptions at all three stages of this insurance plan. As per the rules, there are certain restrictions on fund switching. However, if you have a broader view, it is a good long-term investment if we are looking at tax on ULIPs. Here are some points to keep in mind:
- ULIPs are one of the most tax-efficient investment options in the country.
- They provide great tax benefits as investments less than or equal to the premium of ₹2,50,000 per year on ULIPs are not taxable.
- Investment, interest, and income are exempted from tax as per ULIPs Under 80C.
However, the amendments made in the Budget 2021 to prevent the misuse of ULIPS now has a cap on the amount that is exempted from tax and thus, it is advised to read the ULIP policy’s tax-related information carefully before choosing a plan and deciding on a premium amount.
- A Consumer Education Initiative series by Kotak Life
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Reviewed By :
Prasad Pimple
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
