Regular investment for a longer period of time enables you to accumulate savings and help you to fulfill your big dreams like buying your own house, sending your children for good higher education, etc. However, if this is sounding difficult to you, then opting for the simplest investment solution like Unit Linked Insurance Plan (ULIP) is recommended.
ULIP is a product that is offered by insurance companies but is not purely an insurance policy. However, it gives you the option of both investment and insurance under one integrated plan. In this way, a goal based ULIP not only offers life cover to your family and you, but also helps you to build a substantial corpus for fulfilling your life goals. So, the ULIP plan taken by you invests your money in the stock market via a mix of balanced, equity, and growth schemes.
However, if you are still confused whether you should invest in ULIP or not for fulfilling your long-term goals, we are here discussing the benefits of ULIP:
Income tax not only reduces your take-home salary but can also put a dent on the returns from the investment. This is the reason you should opt for a well-thought investment option and ULIP is one of them. ULIP not only qualify for tax benefits at the time of investment but also at the time of maturity. Therefore, you can get tax benefits under Section 10D and Section 80C of the Income Tax Act 1961.
ULIPs have a lock-in period of five years, which inculcates the habit of long-term investment in you. However, unlike ELSS, the ULIP is bought only once, but its tax benefits can be availed every year until the end of the premium paying term. You can pay the premium of ULIP annually as a lump sum or monthly.
Flexible Investment Option
ULIP gives you the option of switching funds during the plan term. You are free to choose among equity, growth, income funds, and balanced according to your change in goals or risk appetite. Most of the insurance companies allow four switches in a year for free.
Provides Better Returns than Other Investment Options
ULIPs provide potentially better returns than any other investment plans because of the equity advantages provided by it. Let us take the example of a life insurance policy. For life insurance plan, the insurance company levies the mortality charge against the insurance cover. On the other hand, the ULIP returns the mortality charges that you paid on the date of policy’s maturity. This clearly shows that you get more return than the life insurance policy with ULIP. In addition to this, the maturity amount of ULIPs is tax-free as well.
Another example that we can take to understand this point is Fixed Deposit (FD). FD is also a long-term investment as it also comes with the lock-in period of up to five years. Moreover, the returns of FD are also added to your income but become taxable as per the income bracket you come in.
Provides Double Benefits
Even though the term insurance plans provide life cover and also save tax, however, they do not provide any return. On the other hand, ULIPs provide the tax benefit of up to1.5 Lakh Rupees under Section 80C of the Income Tax Act 1961. In this way, it provides minimum sum assured up to ten times of the annual premium for the investors who are below 45 years.
Transparent Investment Option
ULIPs are considered as one of the transparent investment options that disclose the costs and the product where your money is invested. You can easily find out where your premium amount is invested and you always know the returns on your investment cost on yearly basis.
Best Option for First Time Investors
Even though mutual funds have shown the highest score in the investment market, but the market is changing now. This is because more and more investors prefer the ULIPs. This is because, if not equal, the ULIPs also provide comparable returns like mutual funds, if invested in the long term. Most of the times, a first-time investor thinks a lot before investing his/her money in the market. However, as per the new guidelines of the Insurance Regulatory and Development Authority of India, ULIPs are more investor-friendly than other investment options. This is the reason; they are the best for first-time investors.
A table to compare different investment options is given below:
|Investment Type||Profile||Lock-in Period||Interest Rate|
|PPF||Debt||15 Years||7.8 %|
|ELSS||Equity||3 Years||10 % -12 % expected|
|NSC||Debt||5 Years||7.8 %|
|NPS||Debt, Equity||Till retirement||12 % expected|
|Tax Saving Fixed Deposit||Debt||5 Years||6.25 % – 6.75 %|
|Post Office Time Deposit||Debt||5 Years||7.6 %|
|ULIP||Equity||5 Years||10 % – 12 %|
|Senior Citizen Savings Scheme||Debt||5 Years||8.4 %|
|Sukanya Samriddhi||Debt||21 Years||8.3 %|
In this way, ULIPs are one of the best worth creating methods for long-term investors because of the above-mentioned reasons. Moreover, the diversity of funds offered by this investment option makes them worth considering. They are the best for those who want to start investing at a young age.
The above reasons are sufficient to motivate you for buying a ULIP plan and meeting your life goals and long-term requirements.