Have you heard of ULIPs? They are officially known as unit-linked insurance plans. You may consider them as unique choices for your portfolio, particularly if you do not just want life coverage or investments in market instruments. They give you a mix of both, and that too in a compelling package. Let us learn more about them in this article.
ULIPs and their Major Attributes
ULIPs are among the few such plans that offer both life coverage and investment-linked returns/earnings. Their major features include:
- Investment Options: Investors are given a choice between equity funds, debt funds, and variety of other funds, including balanced funds, while starting their policy.
- Fund Switching Flexibility: Most ULIPs allow periodic switching of funds as well. In this system, you can choose newer funds and change your investment allocation depending on market risks and your own changing preferences. Note that fund switches are often subject to limits or charges after a certain number of free switches.
- Life Insurance Coverage: Life insurance coverage is available for the duration of the policy. Suppose you die within this tenure. In such an unfortunate event, the nominees will receive either the sum assured or the value of the fund (whichever is higher).
- Tax Benefits: Section 80C also offers tax benefits to policyholders, while Section 10(10D) provides tax exemptions on maturity proceeds, subject to certain conditions. Lock-in periods for ULIPs are five years, but it is advisable to stay invested for 7-10 years or more to potentially earn higher returns. This longer duration benefits from market growth and the power of compounding.
- Charges: There are some charges associated with ULIPs, including premium allocation, fund management, mortality, and policy administration charges. Note these carefully before investing, as they can impact your returns.
- Professional Fund Management: This is another feature of ULIPs, where fund managers aim at unlocking the best possible returns for you amidst varying market conditions.
- Flexibility in Investment Allocation: When you invest in a ULIP, you can choose the ratio of debt to equity and change this over time with age, changing risk appetite, and changing financial responsibilities.
Choose ULIPs to Save Big for the Future
ULIPs are ideal options for just about any investor. Early on in your career, you can invest more in equities and equity-linked instruments before gradually shifting towards debt and comparatively less risky options with age. Fund switching thus helps you lower risks, and you should also keep tracking your portfolio regularly to assess its performance. You can change low-performing or riskier funds, swapping them for better-performing or safer ones, as per your needs.
With professional fund management, you can also expect to reap the rewards in the long run. Make sure you track your fund value and performance regularly. Also, stay invested with a longer horizon since it will help you earn more through market growth and compounding. If managed smartly, ULIPs can help you build sizable wealth for the future. Of course, you have to strategise smartly and plan your investment in a way that you get the maximum benefits. Take professional guidance if you are facing any confusion and then finalise the right ULIP for your needs.
