Is ULIP A Good Investment Option?

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Is ULIP A Good Investment Option?

A ULIP is an insurance plan that provides insurance coverage while also producing profits through investment sources. Read this article to understand is ULIP a good investment.

  • Mar 07, 2022

Financial planning entails much more than the amount of money you earn or save each month. While most of us have been taught to work hard and save a certain amount of our earnings, our knowledge about the subject should not end there because your ability to invest in the right places impacts the nature of your financial portfolio.

Many people are unsure where to put their hard-earned money to increase their wealth in the long run substantially. In recent years ULIP or Unit Linked Insurance Plans have caught their interest. If you’re interested in learning more about this financial investment tool, we’ll walk you through the nitty-gritties and help you decide if ULIP plans are a smart investment choice.

Basics of ULIP or Unit Linked Insurance Plan

ULIP is not an insurance plan or an investment plan but a hybrid of the two. A ULIP plan is one of the most popular financial instruments available to investors. They are insurance plans that provide insurance coverage while also producing profits through investment sources. In a manner similar to mutual funds, the insurance provider launches a new plan and encourages investors to participate. Further, ULIP plans invest in stocks, commodities, and debt instruments. If you’re looking for the best ULIP plans, make sure you examine the following features and benefits of a ULIP plan carefully:

The Lock-In Period

Since ULIP plans have a five-year lock-in period, they are the greatest option for developing a steady investment habit as they are long-term investments. The lock-in period is usually specified by the policy’s grant date, and the premium must be paid monthly or yearly in one lump sum. In addition, following the 5-year lock-in term, the policyholder has the option of cancelling the insurance and withdrawing assets as needed.

Switching Funds & Flexibility

ULIP plans are particularly flexible since they allow you to transfer funds at any time during the policy’s term. It is, in fact, the only financial instrument that can be used in so many different ways. It allows the insured to move all or part of their investment across funds. Depending on your needs and the fund’s performance, you can pick any of them.

Tax Exemptions

The tax exemption is one of the most significant benefits of ULIP. As per Section 80C of the Income Tax Act, 1961, you can reduce your tax burden by up to ₹1,50,000 if you substantiate your ULIP payments. Additionally, the maturity benefit of ULIPs is tax-free under Section 10 (10D) of the Income Tax Act.

Increased Returns

ULIP is the way to go if you want to make more money than you would with other insurance products if you have a risk appetite for it. This scheme beats all other financial products due to its equity benefit. The premiums you pay are invested in a range of asset types through various funding sources in ULIPs.

Partial Withdrawal

You can always use the partial withdrawal choice offered by Unit Linked Insurance Plans in the case of an emergency. Partially withdrawing funds is normally free of charge. Nevertheless, you should double-check with your insurance carrier.

To summarise, if you wish to profit from many investment sources, look up the best ULIP plans that align with your long-term financial objectives and provide significant returns!

In this policy, the investment risk in the investment portfolio is borne by the policyholder.

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- A Consumer Education Initiative series by Kotak Life

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