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Top Reasons Why Investment in ULIPs Have a Critical Importance

  8/22/16 6:24 AM

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Everyone has short-term and long-term goals. Short-term goals maybe buying that new phone or a new 56-inch television or some new furniture. Long-term goals may include travelling to that dream vacation destination or buying a bigger house. Short-term goals may not require you to plan over a longer time horizon. For instance, if you want a new television, you can perhaps save some money for a couple of months and use it as a down payment for buying a television on EMIs. But for long-term goals, you need to plan over a longer time horizon as the amounts involved are larger and these goals may not be achievable in the immediate future. For instance, you may want your child to study abroad in future, but you need to start investing and saving years in advance. This is where ULIPs come handy.

What is ULIP?

Simply put, ULIP stands for a unit-linked insurance plan.  ULIP is an investment instrument that combines the benefits of both life insurance and investments in money markets. The premium paid for a ULIP is divided into two parts; one part goes towards coverage of risk to life and the other towards investment in money market instruments. ULIPs as an investment category has a lot of inherent benefits, especially when you remain invested over a longer period. If you are wondering as to why should I invest in ULIP, here are 4 reasons why ULIP investment makes complete sense!

Maximize Your Return On Investment

Based on your risk appetite, you have the option to choose the mix of market entities that you would like to invest in. You can opt to invest in debt funds if you are a low risk-taker, balanced funds if you are a moderate risk-taker and equity funds if you are a high-risk taker. You also have the benefit of switching funds depending on your market outlook. You may refer to fund ratings of independent investment research agencies like Morningstar before deciding on the type of funds and policies to invest in. This allows you to time the markets. You can adopt an aggressive approach when the markets are having a good run and invest in debt funds when the market is on a downward swing. This way you can use the market volatility to your advantage.

ULIP Returns

Over a 10 to 20 year period, ULIPs offer in the range of 8.5 to 15%, depending on the category of the ULIP funds like Income funds, Balanced funds, Large Cap Equity funds etc. This is not guaranteed, but something that has been inferred from historical data and trend analysis. This is very close to what Mutual Funds offer over the same time horizon. Hence, ULIPs are a very good avenue for wealth creation. ULIP Returns can help you in raising funds for you to meet your long-term goals and dreams.

Tax Benefits

If ULIP Returns weren’t enticing enough, you get Tax benefits too!. Not all investment options provide tax benefits. Since ULIP is a life insurance product it provides tax benefits. For premiums paid, you get tax rebates under section 80C and all payouts received are exempt under section 10(10D) of the Income Tax Act, 1961. So you not only save money but also can see it grow.

Life Cover

As mentioned earlier, ULIP as a product is offered by life insurance companies. ULIPs fulfil your need for both investment and protection. Though the life cover provided by a ULIP may not be as high as that of a term plan, however, it does provide life cover. In case, you meet with an unfortunate demise, your beneficiary receives the lump sum amount of the Sum Assured. This ensures that the needs of your family are fulfilled even when you are not there to do it.

Considering all the benefits we have seen above, investment in ULIP should be a part of your long-term plan. Overall a unit-linked investment plan like Edelweiss Tokio Life Wealth Accumulation (Accelerated Cover) can be the best investment plan option for your long-term financial goals. It is recommended that you check the performance of individual funds while investing in ULIPs.

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