Unit-linked insurance plan or ULIP is an insurance plan that brings together the benefits of insurance and investment. This is a type of insurance scheme wherein a part of your fund would be invested into various funds, debt or equity. ULIPs provide people with life coverage and also give the added benefit of investment returns.
The Union Budget in 2018 declared a 10% tax on LTCG of equity and equity mutual funds. With this, ULIP has gained more attention. Also, the Insurance Regulatory and Development Authority of India has framed several laws that protect the interest of the investor. Thus, this is the perfect time to consider ULIP as an investment option.
ULIPs may sound quite complicated but are actually pretty simple for business owners to understand and invest in. There are many online websites that have ULIP calculators which help people to understand the life insurance cover one would require and the future investment value.
A Flexible Investment Option
ULIP allows you to choose which funds you want to invest in and how much. With a ULIP, one can decide the debt-equity ratio of their investment. Also, you can always change your investment scheme whenever you feel like it. Investing in ULIP is perfectly suitable when you are indecisive about where to invest in. There are many types of ULIP plans in the market.
Fixed Interest Funds
If you are looking for a steady income, this is the type of ULIP that you need to invest in. Fixed interest funds give you an interest amount in regular intervals. This involves higher risks as your fund would be invested for a fixed period of time.
Cash Funds
With minimal risk, cash funds invest your money into schemes that give you the full amount upon maturity. If one wants to receive a lump sum, this is the ULIP plan to go for.
Equity Funds
Here, the major investment is done in equity funds rather than debt funds. Of course, these plans have a high risk associated with them. But if you are looking for high returns in ULIPs, equity funds are the easiest option.
Balanced Funds
Balanced funds take your money and invest it into different funds, both debt and equity. With lower risks associated with them, balanced funds are a popular option among the public.
Investment for a Longer Period
ULIPs have a minimum lock-up of five years. Because of this very reason, many people shy away from investing in them. However, investing in a long-term scheme can provide you with higher returns in the long run. Also, you needn’t look for other investment options in between because of the longer investment period of a ULIP. The investment always gives more returns than regular savings. In the long run, ULIPs would prove to be a better option.
Basically an Insurance Cover
ULIPs are first insurance schemes, then investment. The basic function of a ULIP is to provide life cover. Hence, ULIPs are the only investment method out there that does the job of insuring you against possible risks as well.
Providing Tax Benefits
Being an insurance scheme, ULIPS come with many tax alleviations and would prove to be a cheaper investment option. The tax levied from other investment funds increased in 2018, making ULIPs the only investment scheme through which you can evade tax.
There’s Something for Everyone
With ULIPs, one would find investment schemes that are suitable for every kind of investor out there. There are unit-linked insurance plans that are of higher risks and there are also plans with lower risk. One can opt between the different plans and choose which funds to invest in.
Various Riders
A ULIP plan always gives you the option to add on Riders to enhance the protection that you receive from the basic scheme. There are many Riders for one to choose from, making ULIP a a more versatile investment option.
Transparent Deal
ULIPs are transparent processes of investment. Unlike other investment methods, ULIP plans showcase what they are doing with your funds. Any changes made in your investment would reflect immediately in your account.
Partial Withdrawal
Unit-linked insurance plans come with the option of partial withdrawal. One can withdraw a portion of the invested money whenever they want to. ULIPs help people save money for a later time when they badly need it.
Is a ULIP Investment for You?
- If you are the kind of investor who does not know much about the market and which funds would yield higher returns, ULIP is the way to go. The insurance company would make sure that your funds are invested in the smartest way possible. It would also give you good returns that you aim at. On the other hand, if you know the ebbs and flows of the capital market, you can also choose to invest in different funds simultaneously and let your instincts guide you. Of course, if you do not have any marketing instincts and are new in the investment area, unit-linked insurance plans are the best option available.
- If one is looking for an investment scheme that would last for a longer period of time, ULIPs can help. They have a lock-in period of 5 years and one has to pay a premium till then. If one decides to drop out during this period, more charges would be levied on him. For people looking for quick returns, unit-linked insurance plans would not be suitable.
- For people who want to invest and still have some assurance with them, ULIP is the best option. They give you an insurance coverage for a longer period of time. They also come with added benefits of Riders. Hence, a unit-linked insurance plan will always be beneficial even if the investment does not give you expected returns.
- A person who wants to invest but cannot handle the added financial pressure of taxes can opt for ULIP. ULIPs get many tax benefits and would not be an added financial burden.
With a premium amount as low as Rs.2000 per month, unit-linked insurance plans are easy to start off your investment goals. The risks associated with ULIP plans are really low when compared with other investment options like mutual funds. ULIP is the answer for all people looking for a good investment and also a secure insurance plan.
