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Do ULIPs Give Good Returns On Investments?

If you seek a solution that provides exceptional returns, long-term advantages, and a systematic way to reduce taxes, ULIP is a great option. Read this blog to know more.

  • 2,599 Views | Updated on: Jan 10, 2024

Are you considering investing your hard-earned money and wondering where to put it for the best returns? Well, Unit Linked Insurance Plans (ULIPs) could be one of the best options on your radar.

Key Takeaways

  • Unit Linked Insurance Plans (ULIPs) combine insurance and investment into one product.
  • ULIPs offer the flexibility to invest in different funds based on your risk appetite and financial goals.
  • Returns on ULIPs depend on market conditions, your fund choices, and the charges associated with the policy.
  • ULIPs are the right investment opportunity for those looking for insurance coverage and the opportunity to invest in the market.

Since investments are an essential component of today’s financial portfolio, making the best decision when selecting an investment instrument is crucial. If you are looking for investments with good returns and insurance, Unit Linked Insurance Plans or ULIPs are a great option. It is a one-of-a-kind, multi-faceted financial tool that provides insurance and investment options via stock and bond.

Understanding ULIPs

ULIPs are a unique financial product combining insurance and investment into one package. A portion of the premium you pay for a ULIP investment goes towards life insurance coverage, and the remainder is invested in various market-linked funds, including equities, debt, or a combination of both.

How Do ULIPs Work?

The working of ULIPs is pretty straightforward. When you buy a ULIP policy, you must decide how to allocate your premium between the insurance and investment components. You can choose from different funds based on your risk appetite and financial goals. ULIPs also offer the flexibility to switch between funds, allowing you to adapt your investment strategy as your circumstances change.

Returns on ULIP Investments

Do ULIPs give good returns on investments? Well, the answer is more complex than a yes or no. Various factors work behind the success and failure of ULIPs. Let us understand them here:

Lock-In Period

ULIPs typically come with a lock-in period, which means you cannot withdraw your money for a certain number of years. It can impact your liquidity and flexibility. 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.

Greater Returns

ULIPs provide more significant returns than any other insurance product because of their equity advantage. The premiums you pay are invested in various asset types through funds in ULIPs. The returns from ULIPs are directly linked to the performance of the investments in which your money is invested. If the market does well, your ULIP can yield substantial returns. Conversely, if the market takes a dip, your returns might suffer.

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. The performance of the funds you choose is crucial in deciding your ULIP returns. Researching and selecting funds that align with your financial goals and risk tolerance is essential.

Tax Benefits and Dual Advantage

ULIPs also offer tax benefits under Section 80C and 10(10D) of the Income Tax Act, making them attractive for tax planning. In addition to giving tax benefits for ULIPs under 80C of up to ₹1.5 lakh as per the Income Tax Act, 1961, ULIPs can be very useful for long-term objectives.

Benefits for First-Time Investors

A market-linked instrument like ULIP makes perfect sense for new investors. It offers long-term returns and is 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 various market-participating schemes.

Additional Charges

ULIPs come with various charges like premium allocation, fund management, and mortality charges. These charges can reduce your returns, especially in the initial years of the policy.

Risk Tolerance

The returns on ULIPs depend on your risk tolerance and investment choices. If you are risk-averse and choose debt funds, your returns might be lower but more stable. On the other hand, if you opt for equity funds, your returns could be higher but with greater volatility.

Long-Term Perspective

Like any investment, ULIPs tend to perform better when held for the long term. Short-term fluctuations should not deter you if you have a long investment horizon.

Way Forward

ULIPs givinge good returns on investments depends on various factors, including market conditions, your fund choices, and the charges associated with the policy. They can be a suitable investment option for those looking for insurance coverage and the opportunity to invest in the market.

However, carefully assess your financial goals, risk tolerance, and investment options before deciding on ULIPs. It is also a good idea to consult a financial advisor to make an informed decision that aligns with your financial objectives. Remember, there is no one-size-fits-all answer to investments, so choose what works best for you.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

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.

Amit Raje
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

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