Since investments are such an important component of today’s financial portfolio, making the best decision when it comes to selecting an investment instrument is crucial. If you’re seeking a solution that provides exceptional returns, long-term advantages, and a systematic method to reduce taxes, ULIP is a great option to start. The ULIP full form stands for Unit Linked Insurance Plan. It’s a one-of-a-kind multi-faceted financial tool that provides both insurance and investment options via stock and bond.
To invest in this plan, policyholders must pay premiums on a regular basis. The rest of the premiums are pooled with funds from other policyholders and invested in stocks, securities, or a mix of both. When we compare ULIP plans to other investment choices, it is clear that the former has some clear advantages. To show the same, we’ll guide you through the features that make ULIPs a great investment choice.
Lock-In Period
ULIPs had a three-year lock-in term at first. The Insurance Regulatory and Development Authority of India (IRDAI) raised the lock-in duration from three to five years in 2010. This five-year lock-in period can help you develop a disciplined investment practice because ULIPs are a long-term insurance policy, and thereby ensure promising returns in the future.
Greater Returns on Investment
ULIPs are said to provide larger returns than any other insurance product because of their equity advantage. The premiums you pay are invested in a range of asset types through various funds in ULIPs. Tax-saving funds have historically provided double-digit returns, but if you’re only investing once, you’ll have to look for a new fund every year. However, ULIP renewals take care of tax savings. The amount payable at maturity is decided by the stock market’s performance over the chosen term period and the maturity amount is tax-free in the hands of the policyholder.
Flexibility & Switching
Depending on your risk-taking ability, ULIPs allow you to switch between funds - you can choose from growth, equity, balanced, or profits funds. In general, four free changes are allowed every year. To enjoy long-time period profits, simply pick the required coverage, adjust the fund allocation at any moment throughout the term as per market performance.
ULIP 80C and Dual Advantage
Term insurance policies provide life insurance and tax benefits. In addition to giving tax benefits for ULIP under 80C of up to ₹1.5 lakh as per the Income Tax Act, 1961, ULIPs can be very useful for long-term objectives as well. It sets the minimum sum assured equitable to ten times the annual premium for investors under the age of 45.
Benefits for First Time Investors
For new investors who are changing their investment habits, a market-linked instrument, such as ULIP, makes perfect sense. ULIP plans offer long-term returns and are at least equivalent to, if not similar to, mutual funds. A first-time investor seeking a low-risk option to invest in the stock market might pick from a variety of market-participating schemes. All they need to have an idea about is their investing range and financial goals.
Now that you have some idea about returns on ULIPs, you can weigh your pros and cons and make a decision that works out best for you!
