The income tax for sure reduces the amount of take-home salary, but if you are investing your money in a well-thought investment option, then you can definitely boost your income and hence help you to fulfill your investment goals.
The return of a good tax saving scheme depends on a lot of factors such as the lock-in period, maturity period, etc. This is the reason, ULIP returns in 10 years and ELSS return in 10 years are maximum than other investment instruments.
On one hand, where ELSS (Equity Linked Savings Scheme) invests money in mutual funds, the other hand, ULIPs (Unit Linked Insurance Plans) invest in the stock market in a mixed bag of growth, equity, and balanced schemes.
In this article, we are going to discuss how ULIP works best as a long term investment plan:
ULIP as a Long Term Investment Plan
The reasons why ULIP is the best as a long term investment plan are:
The Lock-In Period
The minimum lock-in period of ULIP is five years and it is the best to invest in it for at least 10 years. With long lock-in period, ULIP develops a habit of investment in its investors. The lock-in period is calculated from the date of policy issuance and you can pay the premium as monthly or yearly as a lump sum to get the maximum ULIP return.
Flexible Investment Option
With ULIPs, you always have the flexibility to switch your funds during the policy term. You have the option to select among income, growth, equity, and balanced funds according to your risk appetite. Different ULIP providers have different free switching options, and most of them give the flexibility of at least four free switches in a year. Moreover, to get ULIP to return in 10 years, you do not have to keep a track of the organizations wherein your money is invested. The only thing that you have to do is to choose the fund option, and/or switch the fund allocation during the policy term, and run the plan till the maturity to get the maximum ULIP return.
ULIP Returns Are Better than Other Investment Options
When talking about returns, ULIP returns are better than other insurance products. The reason for the same is its equity advantages. The premiums paid by you for ULIP are invested in different asset classes via various products. Among other tax-saving funds, ULIPs have shown double-digit returns, however, you have to take the benefit of switching facility and invest in the new fund each year. At this point, you may also think about Fixed Deposits (FDs) as investment option as they are also long term investment schemes and provide good returns. However, the returns of FD are added in the income and hence become taxable according to your income.
Even though the term insurance plans as well provide the tax saving benefits with life cover, but they do not give any return. However, ULIPs, on the other hand, provide tax benefits under Section 80C of the Income Tax Act, 1961 and hence become as one of the best long term investment option.
Top-Ups and Premiums
The ULIPs provide both annual and monthly premium payment options. However, for better ULIP returns in 10 years, it is suggested to opt for the monthly option by going with the SIP mode. Moreover, if you want some surplus advantages, then you can also opt for top-ups that are available by paying some extra cost.
As per the new guidelines of the Insurance Regulatory and Development Authority of India – ULIPs have become more investor-friendly than before when they were first introduced. This is done by reducing various charges like allocation cost, fund management cost, administration cost, etc. In this way, apart from the above points, the reduction of these charges has greatly affected the cost of ULIP and consecutively increased the ULIP returns in 10 years. However, every investment option is not for everyone, thus we are further going to discuss who should invest in ULIP.
Who Should Invest in ULIP?
Investing money for the long term is not everyone’s cup of tea. However, if you are the one who wants both protection and savings in one investment plan, then ULIP is for you. ULIPs are long term investment plans, thus, if you want to save money for fulfilling your long term investment goals, then it is recommended to opt for ULIP as ULIP returns are high with long term investment.
So, if you are the one who wants a long term investment option with a lock-in period, then ULIP returns in 10 years will for sure be able to fulfill your long term goals. Even though other long term investment options like Mutual Funds are advantageous as they are open-ended and can be redeemed anytime, but ULIP as an investment is always better. This is because, if you are the one who has long term goals and does not have a habit of investing regularly, then locking your money in ULIP is always better.