No one wants to taste the risk unless it lures you to have high returns!
When Shubham, 37, started his second job, he bought a ULIP plan. His prior employment provided him with Rs.40 lakh life insurance coverage, but when he changed jobs, the policy expired.
Shubham was married; therefore, he was more concerned with possessing assets and developing riches in his life. He was fully aware of his obligations, as he and his wife were expecting a baby into their family. Apart from preserving a percentage of his salary for unforeseen needs, Shubham researched the finest investment choices.
He was aware that relatives and friends are frequently handbound in times of difficulty, making it difficult for them to offer assistance. It forces Shubham, and many others like him, to consider making secure investments and saving more money.
As Shubham has a family with his roles and responsibilities, Shubham considers buying life insurance and an investment plan to build his wealth.
In that scenario, ULIP is often regarded as one of the most favored and widely recognized financial tools for making investments. It gives you a life cover and gives you a market-linked return.
What is a ULIP?
A ULIP is an insurance policy that provides life insurance cover to the policyholder plus allows you to invest your money to let it grow with time to beat inflation. It is also a safe investment option for those who wish to build a corpus of wealth. ULIPs make for the best investment option as these:
- Offer tax savings options under section 80 C and section 10(10D).
- It gives you higher returns as it is market-linked.
- Allows you the flexibility to choose between different types of funds before investing concerning age & risks involved.
Why should you choose a ULIP for investment?
You might be wondering what ULIP includes; it has investing options in various funds, including equity, debt, and combined funds.
It would imply a risk connected to market returns and thus having market risks as well. But this attracts the advantage that these investments are made over a lengthy period, such as 10 or 15 years. You can save a lot of money in such a given period. Aside from investing, you also get a life insurance policy, which is helpful for the family in sudden death.
What does ULIP involve? Risks but protection at the same end.
A ULIP is a broader life insurance policy that provides you with life insurance and helps you manage your assets. The funds’ Net Asset Value (NAV) is declared daily.
The ULIP returns are calculated as the difference between the current day NAV and the NAV when the ULIP was issued. For example, if the NAV at the time of purchase is Rs.100 and rises to Rs.120 after a while, the return on your ULIPs is 20%.
The returns on ULIPs vary depending on the type of funds, such as equities, debt, or balanced funds. Because the funds are managed per market movements, they may appear risky to you. Is it, however, risky to invest in a ULIP? Let us investigate deeper.
How safe is it to invest in ULIPs?
The rate of return in ULIPs depends on the type of funds you choose. Return on some of the common funds are :
|Name of the company||Rate of Return in 5 years|
|Aditya Birla Sun Life Insurance ULIP plan||15.92%|
|Aegon Life Assure Plus Debt Fund||7.70%|
|Bajaj Allianz Life Equity Mid-Cap Pension Fund||26.19%|
|Bharti AXA Guarantee Builder Steady Money Fund||8.10%|
The rate of returns is variable, but the best fact is that you get assured returns from what you invest in as a premium portion.
- When you choose a ULIP plan from one insurance company, the insurer collects all the money invested in the pool. They further bifurcate the total corpus into the fund units that have some face value. After the allocation, the policyholder (you) are given specific units that proportion to the amount invested by you.
- The insurance regulator IRDA has put a cap on charges and a net reduction in yield for the investors. The idea is to control the impact on the ULIP returns.
Hence, you can consider investment in ULIP a safe option. Buying ULIP policies entails different charges like allocation charges, administration charges, mortality charges, and fund-management charges. When you plan to invest in a ULIP, consider your affordability as insurance companies will charge you even if the plan is withdrawn before completing the lock-in period.
If you are convinced to buy a ULIP and are unsure how to proceed, the following section must be read. Here is what you need to know more about purchasing a ULIP.
What are the things to know before buying a ULIP plan in India?
Here are a few things that you must know before buying a ULIP plan in India:
- Identify your objective of buying a ULIP: You should understand why you are purchasing a ULIP plan. ULIPs are long-term investment products that help you save money over a 10 or 15-year period. Consider whether you need a ULIP for your retirement or your child’s higher education when purchasing one. When purchasing a ULIP for retirement, you might select plans that pay out significantly after the maturity date. These ULIPs can be converted to annuity plans, which provide you with periodic payments for the rest of your life. Purchase a Plan that will pay you enough money to cover your child’s higher education fees.
- Consider charges involved in buying a ULIP: You have read above about different charges involved in buying a ULIP. Think and decide whether you will be able to afford these expenses or not.
- Identify the funds you will invest in: You can choose to invest the money in equity funds, debt funds, and income funds.
- Do read the terms and conditions before making the final purchase.
- Know what the premium payment term is and what the lock-in period. It will give you an idea of what is the time you cannot withdraw the funds.
ULIPs are market-linked insurance products with return risk. However, the financial instrument allows you enough leeway to make investments. If you enjoy taking risks and want to establish an extensive financial portfolio, you should consider investing in ULIP plans. You can research ULIP plans online or ask your financial advisor to recommend a policy that meets your needs.