ULIP or Unit Linked Insurance Plan is a type of insurance, which combines the benefits of protection and investment in a single plan. In a ULIP small amount of the premium goes to secure life insurance and the rest of the money is invested just like a mutual fund does.
Apart from the life cover and income tax benefits, the biggest benefit is that some of the premium is invested in the stock markets/money markets consistently and over a period of time, the potential for returns is much higher than it is with other investment options.
ULIPs based on type of funds:
Equity: The investors’ money is used to purchase equity shares of one or more companies. Investing in equity is risky but it is also highly rewarding if we take a long term view.
Debt: The funds are invested in debt instruments such as debentures, corporate bonds, Government bonds and securities, and fixed income bonds. These are low to medium risk.
Liquid funds: These funds park investors’ funds in highly liquid money market instruments such as treasury bills, call money, and certificates of deposit (CD).These are low risk.
Balanced funds: In this allocating one part of the funds to equity and the other to fixed-income debt instruments, the risk is effectively spread out across high-risk and low-risk investment options. As a result, the returns offered by balanced funds are more stable and a lot less volatile than the returns obtained from pure equity funds.
So analyze your personal investment goals, and then decide the objectives. After this it is important to evaluate your own risk profile and financial stability. Understand the different charges levied by the insurance companies. And then choose the best plan according to you.
So what are the benefits of investing in ULIPs?
Long term wealth creation: ULIPs help in the habit of regular savings and investment, which is the key to successful long-term financial planning. With regular premium payments, you can enjoy the benefits of wealth creation for your loved ones.
Insurance cover: The insurance cover ensures that policyholders dependents get financial security.
Income tax benefit: Investment in ULIPs is eligible for deduction from taxable income up to Rs.1.5 lakh per annum.
Flexibility of Investment: The option to switch between investment funds to match your changing needs. Top up premium additions to enable the policy holder to invest additional sums of money (over and above the regular premium) as and when desired, subject to conditions.
Withdrawal benefits: The facility to partially withdraw from your fund up to three times, for any life or emergency requirements, subject to charges and conditions.
Variety of funds: There are various options for a person to invest depending on his risk taking profile, from risk takers to risk managers to risk averters.
ULIPs are brilliant insurance products for those who want a protective cover as well as maximise their savings. Always be prepared because the future isn’t always crystal clear. The earlier you start planning with a ULIP, the earlier your goals can be achieved.