Two in one has always been our preference. Whether it is radio cum tape recorder or mobile phone cum camera or whether its dual SIM card mobile phone or two refill ball pens.
In India, the Unit trust of India first realised this and had launched Mutual Fund Cum Insurance Plan known as Unit Linked Insurance Plan in 1971. Thereafter, in 2001 with the opening up of the insurance sector, every insurance company launched their own ULIP schemes.
IRDA is now governing ULIP guidelines.
ULIP has become popular because of its two in one combo offer.
Life Insurance risk cover and Mutual Fund kind of market-linked return option; two in one combo offer is what making ULIPs popular investment choice.
Unique features of ULIPs:
1) Return on Investment:
Since units are market-linked, investors can get market linked returns. This could be more than fixed rate secured return.
Since market linked funds are subject to the risk of market performance, the return cannot be guaranteed.
Expert fund managers are managing these funds for the investors.
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2) Maturity Benefits:
This could be at the time of maturity of the investment or death of the unit holder. Earlier of the two.
The maturity proceeds are higher of the fund value and the policy amount.
This ay risk and return are managed by the investors.
3) Partial Withdrawal Benefits:
Yes, this is also possible. This instrument takes care of your emergency need. You can withdraw money after the end of the 5th year of initial investments.
You can withdraw the gain on the investment. This means the fund value after the partial withdrawals shall not be below 105% of the investments.
4) Tax Benefits:
Under section 80 C, investment in ULIPs is tax exempt up to the amount of Rs.1, 50,000/-. If you are falling under 30% tax bracket, direct cash benefit of Rs.45, 000/- in the first year.
The maturity proceeds/ death proceeds are tax-free under section 10 (10D).
Premature withdrawals before five years are taxable. After the five years, all withdrawals are tax-free.
5) Switching Benefits:
This is another important option given to the investors. The fund can be switched based on the performance of the fund. The fund can also be switched based on the changing risk appetite of the investors.
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6) Planning Benefits:
You can increase the investment amount, switch the fund, reduce the tenure, can select an option of a self-managed fund to the company managed fund.
Unit Linked Insurance Plan investment instrument is an ideal investment option as it serves multiple purposes.
- Risk Management
- Return on Investments
- Tax Benefits
- Customised Financial Planning
Coconut tree for its multiple benefits are known as ‘Kalpavriksha’, likewise this multiple benefit investment instrument ULIPs can also be compared with the coconut tree.
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