Unit-Linked Insurance Plans (ULIPs) have become the most popular of all investment instruments in the country because of their incredible benefits. Just like regular investment plans, you have to pay premiums regularly; the key benefit is that while a part of the premium is invested in diverse market-linked funds, the rest acts as a regular term life insurance plan, providing protection to your family against any unfortunate eventuality. Unlike traditional insurance plans where your funds are parked to provide the sum assured as death benefit, ULIPs provide you with living benefits as returns on investments. You can select to invest in debt funds, equity funds, or a mixture of both, depending upon your risk appetite and investment goals. Investment in diverse market-linked funds allows you to hedge your investment portfolio from market risks.
Choosing the right investment plan is important, and for this you must know the types of ULIP funds. Based on your financial requirements and capacity to handle risk, ULIPs are categorised as:
- Equity-based ULIPs: These ULIPs invest primarily in company stocks and equities, and are categorised as high-risk investments. This means that while there could be proportionately higher returns, the investment is also subject to high market risk. If you have a higher risk appetite, and want better returns, this is the ideal investment plan for you.
- Debt-based ULIPs: These ULIPs invest in corporate and government bonds along with other fixed-income instruments. These usually provide lower returns as compared to equity-based ULIPs, but are safer as well. If you have a lower risk appetite, and are happy with comparatively lesser returns, this can be your ideal investment plan.
- Balanced ULIPs: These ULIPs invest in a mixture of debt and equity funds. Your investment is distributed across high-risk equities like company stocks and low-risk fixed income instruments like corporate bonds. If have a moderate to high risk appetite, and want medium to high returns, these investment plans are ideal for you.
- Cash funds/ Money market funds/ liquid funds: These ULIPs invest primarily in short-term market instruments, including treasury bills, commercial papers and cash/bank deposits. They are subject to lower risks vis-à-vis other types of ULIPs, and consequently provide lower returns.
Why should I invest in ULIPs ?
The answer to why should I invest in ULIPs is that these investment plans provide you with a wide range of benefits. Here is a list of the benefits:
- Tax saving benefits of ULIPs: It provide you with manifold ULIP tax benefitss. You can avail a maximum tax benefit 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.
- Benefits of fund switching: Another reason why I should invest in ULIPs is that this investment plan provides you considerable flexibility to switch from one fund to another, if the existing funds are not performing well. For instance, if you have invested primarily in debt funds, and are not satisfied with the returns, you can shift to a more aggressive fund like company stocks to get better returns. You must remember to read the policy document carefully before purchasing a ULIP. While some companies cap the number of switchings in a specified time period, other provide unlimited switching options. This key benefit of ULIP—also known as investor selectable portfolio strategy—allows reviewing and relocating your investment portfolio as per your changing life goals.
- Helps to meet a variety of financial goals: A succinct answer to why I should invest in ULIPs is : it allows you to meet a wide range of long-term financial goals like providing funds for your child’s education, building a retirement corpus, wealth creation and protection from personal or medical emergency.
Conclusion: Starting early, investing regularly, and for the long-term are the key rules of maximising benefits from a ULIP. ULIPs provide you the best of both worlds—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. On Finserv MARKETS, you can avail guaranteed transparency for ULIP plans alongside a simple online claim registration process.