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Unit-Linked Insurance Plans have emerged as among the most popular of all investment plans because they allow you to invest in diverse market-linked funds keeping into account your risk appetite and life goals. The key highlight of a ULIP is the dual benefit of protection and wealth creation. ULIPs provide protection to your family in the case of any unfortunate eventuality, just like a term insurance policy. Besides, a part of the premium is invested in debt or equity, or a mixture of both, according to your preference, thus providing you with returns on your investment.
Why should I invest in ULIPs now?
The answer to why should I invest in ULIPs now lies in the fact that with the advent of the internet, this flexible investment plan is now transformed into an easy-to-avail investment tool with manifold benefits. You can not only invest in a ULIP at your own pace but also avail tax benefits. At present, Unit-Linked Insurance Plans are the only equity-linked investment plans which are tax-free. Thus, by providing enhanced returns, ULIPs allow you to move closer to your life goals. For instance, you can select Bajaj Allianz Long Life Goal, available on Finserv MARKETS, which allows you to achieve your life goals—be it early retirement, going for long vacations, or saving for your child’s higher education—through systematic investment in ULIPs.
To put it simply, the succinct answer to why should I invest in ULIPs now is: this new-age investment plan provides you with a comprehensive package comprising market-linked returns, the flexibility of asset allocation, tax savings and protection of your family’s financial stability in the case of any unfortunate eventuality.
Understanding types of ULIP funds:
ULIP funds can be classified into four categories on the basis of risk appetite and investment objective:
- Equity funds: These Unit-Linked Insurance Plans invest in company stock and equities and are best suited for investors having a high-risk appetite. You must remember that although these ULIP funds can provide higher returns, they are also subject to high risk because of market volatility.
- Income and bond funds: These ULIPs invest primarily in fixed income instruments like government securities and corporate bonds. They are subject to medium risk and provide medium returns.
- Asset allocation funds/ balanced funds: These funds are a mixture of both equity and fixed income instruments. Here, the investment amount is distributed between high-risk equities like company stocks and low-risk fixed income instruments like corporate bonds. Being an amalgamation of both fund types, these funds are subject to medium to high risk and consequently provide medium to high returns.
- Cash Funds: These funds are also known as money market funds or liquid funds. These ULIPs are primarily invested in short-term market instruments, like cash and bank deposits, commercial paper and treasury bills. These ULIPs are subject to low market risk and provide lower returns when compared to the other types of funds.
Understanding Investor Selectable Portfolio Strategy in a ULIP:
Investor selectable portfolio strategy is also known simply as fund switching in ULIPs. This allows you to allow you to make asset allocation for investment on the basis of your risk appetite and financial goals. For example, if you want higher returns, then you can allocate a large share of the asset towards a riskier asset class like equity. This feature of ULIPs allows you to review and reallocate your investment plans—without additional charges, or taxation impact—to meet your financial goals. Diversification of fund allocation also helps you to hedge your investment portfolio from risk. Market experts suggest that you can start with a higher investment towards riskier asset classes at a young age, while starting investment, and then shift to low-risk funds in the face of approaching maturity. This is often referred to as ‘Years to Maturity’ based portfolio management.
Tax benefits of ULIPs:
Besides being an efficient investment instrument, ULIPs also provide you with tax benefits. You can avail maximum ULIP tax benefits of Rs 1.5 lakh on the premium paid for a ULIP plan under Section 80C of the Income Tax Act. Under Section 10D of the act, the income from ULIPs, at maturity, is also tax-free. The long-term capital gains from equity funds in ULIPs are also exempt from taxation.
ULIPs provide you with the dual benefits of being investment plans with market-linked returns and a life insurance policy in the case of an unfortunate eventuality. On Finserv MARKETS, you can select an easy-to-avail online ULIP policy, which can be invested in both debt and equity, as per your risk appetite. Here, the ULIP plans come with a minimum lock-in period of five years. Finserv MARKETS provides guaranteed transparency for ULIP plans alongside a simple online claim registration process.