Have you ever heard of the phrase –‘first mover’s advantage’? This is what happens when you start something before anyone else does. In the world of financial investment, anyone who starts investing early will see their money grow over time. If that is indeed your objective, then you must consider adding a ULIP planto your investment portfolio.
ULIPs are one of the best tax saving instruments and a robust investment plan that offers dual benefits of wealth creation and life insurance. You will rarely find a financial investment that can provide you the benefits that ULIP can. Apart from giving you better returns over the period of investment, it also saves you money in tax deductions.
When you invest in a ULIP plan in India, you get an opportunity to experiment with financial instruments as per your risk appetite and affordability.
The primary reason why ULIPs are so popular amongst investors is that they offer wealth creation options and flexibility. Here are some features that make them unique and a must-have instrument in your financial portfolio.
Lock-In Period In ULIPs
A lot of people invest in a ULIP Planbecause of its dual benefits of life insurance coverage, as well as an opportunity to invest in different market funds.
Alongside, ULIP planscome with a lock-in period of five years that refers to a time frame where the policyholder can neither withdraw nor liquidate the value of their fund. If you discontinue or surrender the plan within this duration, then you will not be entitled to the stipulated payout. However, after the lock-in period, you will receive the payout.
Even though you are allowed to exit the plan after the lock-in period, it is advisable not to do that. One way to benefit more from the ULIP plan in India is to stay invested for at least 10-15 years. If you want to grow wealth, then ULIPs are your best bet!
Partial withdrawals in ULIP
Another crucial feature of a ULIP plan is the facility to make a partial withdrawal in times of emergencies. The money can be withdrawn from your own accumulated fund value before the policy matures.
However, you need to keep in mind that you cannot withdraw the entire amount. Moreover, this feature is only available after your initial five year lock-in period ends. There are also other conditions to these withdrawals that include:
- Investment-linked pension plans are ineligible for partial withdrawals
- The maximum withdrawal amount must be between 10 and 50% of the premiums paid. Since this limit varies from policy to policy, be sure to read up the fine print before investing.
When you are selecting the ULIP plan for your investment portfolio, make sure you have chosen the right features to maximize your returns before the policy matures.
Why should You invest in ULIPs?
As a breadwinner in your family, you must protect your family’s financial well-being in case something happens to you. At the same, you must also put your investment to good use by venturing into wealth creation opportunities to fund your life goals, such as buying a car or a house. This is where a ULIP plan comes in to help you create wealth.
So, if you are wondering if ULIP is a good investment option for you, then here are a few reasons to help you make your mind about investing in ULIP:
- Investment as per your risk appetite: When you invest in a ULIP plan, you have the option to choose the investment composition based on your risk appetite. For instance, if you are risk-averse, then you can put your money in low-risk debt funds.
But if you can handle a moderate risk factor, then you can mix and match your investment profile between debt and equity funds. However, equity funds are high risk but offer excellent rewards if the market does well.
- Transparent investments: You will know how your premium is being allocated to various funds and the charges that apply to your investment account.
- Switch between funds: Apart from being transparent, ULIP plan in Indiaallows you to switch between debt and equity funds based on market performance.
- Long term investment: You may have long-term goals such as buying a new car or a house, setting up a new business.For them all, a ULIP planwith a five-year lock-in period proves to be a valuable investment opportunity. If you choose to exit the policy after the maturity period, it would still be a lot more than what you will get if you had parked that amount in a savings account.
- Tax benefits: ULIP is not just an investment but also an insurance product that comes with tax benefits. All the premiums paid towards your life insurance are tax-deductible up to Rs. 1.5 Lakh per annum.
Don’t worry if you have exhausted your tax deduction limit. You can claim deduction under section 80D on the premium paid for health insurance plans.
ULIPs are a good investment option for you if you have long-term goals. You must, however, check the performance of individual funds before investing in ULIPs.
