Can ULIPs Give Higher Returns?
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A market-linked product is a Unit Linked Insurance Plan (ULIP). This means that, in addition to providing life insurance, your investment is diversified in the open market, and the returns are incidental to market performance, allowing you to get better long-term maturity advantages.
In a ULIP, the compensation is the amount paid to the beneficiary if the policyholder passes away during the policy duration. The policyholder will receive a maturity benefit if he or she survives to the completion of the ULIP's tenure.
ULIP investments can be tailored to your specific needs. You can invest in a variety of funds based on your risk tolerance.
5 Reasons Why ULIPs Can Give Higher Returns
Let's look into 5 reasons why ULIPs can give higher returns:
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Possibility Of A Higher Return Among Peers
Because of their equity advantage, ULIPs have the potential to generate higher returns than any other insurance product. ULIPs invest the premiums you pay in a variety of asset types through various funds. Tax-saving funds have traditionally provided double-digit returns, but if you're making a one-time investment, you'll need to seek a new fund every year. Renewals of ULIPs take care of tax savings.
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Flexibility
ULIPs allow you to change funds during the period. Depending on your risk appetite or changing goals, you can choose among growth, equity, balanced, or income funds. In general, four free switches are allowed every year.
You don't have to keep track of the firms that the fund invests in as you do with stocks. To enjoy long-term gains, simply select the policy, change the fund allocation at any moment during the term, and keep it running until maturity.
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Period Of Confinement
The five-year lock-in tenure of ULIPs can aid in the development of a portfolio management habit. Investing in a single ULIP helps because it is a long-term insurance policy. Unlike ELSS, the policy is purchased only once, but the tax benefit is available each year until the conclusion of the premium-paying period. It's vital to keep in mind that, while having the shortest lock-in period of three years, the money invested in the first year is only available in the fourth.
As a result, any investment, whether made monthly through systematic investment plans (SIPs) or annually as a lump sum amount, can only be withdrawn after three years. The lock-in period for ULIPs begins on the date the policy is issued. The premium can be paid monthly or in one single payment each year.
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Dual Advantage
Term insurance plans provide life protection and tax benefits, but they do not provide a return. ULIPs can be beneficial for long-term goals, in addition to providing a tax benefit of up to Rs 1.5 lakh under Section 80C of the Income-tax Act, 1961. For investors under the age of 45, it provides a minimum sum secured equivalent to ten times the annual premium.
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First-time Investors
Mutual funds and insurance plans are slowly gaining traction with FD-oriented investors. According to the latest data from the Securities and Exchange Board of India, mutual fund folios reached a new high of 6.5 crores at the end of November. For new investors who are changing their investment habits, a market-linked instrument such as a ULIP makes sense.
Conclusion
Unit linked insurance plans blend the benefits of diversity in stock investments with the benefits of life insurance into a single plan. These plans offer market-linked rewards as well as life insurance. They are extremely adaptable and stable. You can evaluate any fund's performance and change the fund(s) you want to invest in based on your preferences and risk tolerance.
Must Read:
Lock-in Period in ULIPs Explained
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.
