Tax saving is integral to efficient financial planning. And, for those looking to invest to fulfill their long-term goals and also save tax at the same time, Unit Linked Insurance Plan (ULIP) is the right choice. Let us discuss how to invest in it.
A Unit Linked Insurance Plan is an insurance product that provides you the ability to invest in various asset classes and at the same time get a life cover. You can invest a definite portion of the premium in the funds of your choice, allowing you to earn a return on your investments. ULIP is considered a more dependable capital creating tool over the long term, keeping in mind the returns, the compounding effect, protection and tax savings, all pooled in one product.
ULIPs are a helpful financial tool that can be used to fill the gap amid the various investment options along with the extra advantage of significant tax savings.
ULIP also allows the policyholder to decide his or her ideal asset class. Any young individual with high-risk tolerance can opt for a high-risk high-return strategy by investing primarily in equities. Or, one can opt for a combination of equity, debt, and a balance of both debt and equity to benefit from high returns with minimal risks.
A ULIP investor has the flexibility to switch from one asset class to another or modify the proportion in which funds are invested in equity, debt instruments. Along with the above-mentioned benefits, ULIPs also offer fantastic tax savings on withdrawals. So, the money gained from ULIP is taxfree.
Even the death benefit paid under the ULIP is entirely tax-free.
ULIPs have a minimum lock-in period of five years. Partial withdrawals can be made by the policyholder after this period. The partial withdrawals are completely tax-free, provided they are made after the completion of the lock-in period.
This aspect allows individuals to use ULIPs for goal-centric planning. You can use ULIP investments to plan for important objectives like building a retirement corpus, education or marriage of your children. In the end, ULIPs let individuals invest surplus cash through periodic top-ups.
For this reason, investing in a product like ULIP is the most simple and smart way to have the triple benefits of life cover, high returns, and tax savings.