When it comes to financial decisions, most of us prefer to invest in products that offer higher monetary benefits. A Unit-Linked Insurance Plan (ULIP) is one such instrument, which has the potential to offer high returns on investment.
The biggest advantage of investing in a ULIP is the dual benefit; you get an insurance cover and an investment solution. With a ULIP, you can get a life cover while focusing on fulfilling your long-term financial goals. ULIPs are suitable for all types of investors.
How Does ULIP Work?
To understand what is ULIP, you need to know its way of functioning. Whenever you invest in a ULIP, you pay a specific amount of premium for a pre-defined coverage, which is the sum assured.
The fund manager will control your ULIP investment based on the type of fund chosen by you.
Features of ULIP
Let us discuss the attributes of ULIP that contribute towards your long-term life goals:
#1. Lock-In Period
ULIPs have a lock-in period of five years. You do not receive any returns during this tenure. You can withdraw money or surrender the policy after the end of the lock-in period.
In the case of a ULIP, the idea is to remain invested over a long duration, which should be more than the minimum period of five years.
If you have the right allocation mix based on your long-term goals, you can earn significant returns over a long tenure.
#2. Fund Switching
Another unique offering of ULIP investment is the flexibility that it provides. You have the choice of switching among funds as per your convenience.
Based on the market scenario, you can switch among debt, equity, and hybrid funds without incurring any cost.
Choose a qualified advisor who has superior skills in asset allocation; he can help you earn optimal returns on investment, depending on the objective.
#3. Tax Benefits
As per the Income Tax Act, 1961, the premium paid towards a ULIP fund will be eligible for a deduction under Section 80C. You can avail of a maximum deduction of INR 1.5 lakh under this section.
Additionally, the returns generated from the policy are exempt from tax under Section 10(10D) of the Act.
#4. Multiple Fund Options
When you invest in a ULIP, you get to choose from various funds available in the market. Considering your long-term financial goals, you can choose the fund that fits your risk appetite.
#5. Goal-Based Planning
ULIP funds are structured in a manner to help you achieve long-term goals like wealth building, retirement planning, or children’s education. You can rest assured, knowing that the premium is working towards your future life goals.
You can identify your short-term and long-term objectives and then choose a suitable fund. Expert investment professionals will invest the amount carefully to ensure that you receive high returns from the investment.
A huge advantage of investing in ULIP is liquidity and transparency. It has a charge structure, which is shared before you purchase the product. Additionally, you will get information about the value of the investment and the estimated rate of return.
Along with the daily Net Asset Value (NAV), you will receive the quarterly investment portfolio and an annual account statement. This will ensure that you have knowledge of how your investments are performing.
Investing in ULIP funds for accomplishing your long-term goals is a smart financial decision. A ULIP will take you closer to your objectives; however, you must stay invested for a long duration, as the power of compounding will maximize your returns.