At present, there are thousands of financial products available in the market. This makes it difficult for you to decide which investment product will help you achieve your financial goals. You must be perplexed whether you should invest in traditional saving plans such as FDs or PPFs; or you should choose an evolved investment option like ULIP. Both Mutual Funds and ULIPs are market linked investment plans where wealth is invested in the market on behalf of the investor with an aim to provide best maximum returns.
Let’s look at what happens when you invest in Mutual Funds or ULIPs?
When you invest in mutual funds, your money gets invested in different market assets to gain maximum returns. Not all mutual funds provide tax benefit and the returns you gain are taxable.
When you invest in ULIPs, your funds are not only invested in the market but you also get a life cover and tax benefit. In this way, you get triple benefits which are investment, protection and tax benefit.
Do you think investing in mutual funds or ULIPs is going to provide you with the same benefit?
Investing in mutual funds will provide a sole benefit of investing in the market; whereas investing in ULIP will also provide you with a life cover.
This means ULIP provides security to the policyholder’s family in case of an untimely demise which means if any unfortunate event of death occurs to the policyholder, the nominee gets the sum assured amount. In this way, it takes care of the liabilities and responsibilities of the policyholder.
Another major advantage of investing in ULIP is that it provides tax benefit under section 80C of the Income Tax Act. Investing in ULIP reduces your income tax liability. You can save up to Rs 1,50,000/- under section 80C. Even the returns are tax exempted under section 10 (10D).
When should you consider investing in ULIP?
ULIPs are best suited for individuals with a long term financial plan of wealth creation like buying a house, child’s education, retirement savings, etc.
The lock-in period is five years, however, it is recommended to invest for a longer period so that you let your money grow as the market evolves. Unlike Mutual Funds, ULIPs are flexible for an investor. It lets you switch your funds for better returns. So, one can switch between debt funds to equity funds, depending on his/her risk appetite and the versatility of the market. Also, ULIP lets you invests small amounts at regular intervals. This systematic form of investment helps to average out the uncertainty in the market. Some ULIPs also provide additional allocations at regular intervals,
this serves as an addition to your investment. So the company also invests in your plan without any additional cost!
Let’s look at the below example;
Anil has invested Rs. 4000 per month in ULIP, while Dinesh has invested in mutual fund with the same amount. Both Anil and Dinesh have invested Rs 4000 per month for the next 20 years at an 8% fund growth. However, Anil gets additional advantages like life-cover, tax benefit and also additional
allocations simply because he has invested in ULIP.
At the end of the policy term, Anil will get an amount of Rs 24.38 lac* (tax-free) whereas Dinesh will receive returns of Rs 23.72 lac. Anil has received this extra earning simply because he has invested in a Unit Linked Insurance Plan that offers additional allocations at regular intervals. Anil has also managed to save huge amount of his income every year by reducing his tax liability. While he was investing for all these years he also ensured that his family’s future was protected. So in case Anil would have met with an unfortunate untimely demise, his financial responsibilities and liabilities would also be taken care of.
In this way, ULIP provides an investor with a triple benefit of Security, Savings & Earnings!
If you wish to calculate the returns you will get after investing in ULIP, click here:
* Additional allocations start at 1% & increase every 5 years to 3%, 5% and 7%