Do not surrender your ULIP within 5 years – here is why

If you have invested or are planning to invest in market-linked schemes, make sure that you have a long-term investment horizon. That is because investment avenues like mutual funds, stocks or even for that matter Unit Linked Insurance Plans (ULIP) are said to give the best results for those who remain invested for the long run. ULIPs as the name suggests, are insurance schemes that invest in the stock market. They can be a good investment choice for those who are looking for a scheme that offers dual benefits. A ULIP offers insurance to investors and also gives them an opportunity to invest in the equity markets through mutual funds.


You can say these schemes are designed for investors who have a long term investment horizon because ULIPs come with a 5 year predetermined lock-in period. However, if you are someone who has invested in a ULIP or are considering making an investment in this dual benefit offering investment linked scheme, there is a good chance of you benefiting even more if you take the decision of remaining invested even after the 5 year lock-in period ends.


Here’s why.


Investors should try to remain invested in their ULIP plans for at least ten years. Although you can redeem your gains whenever you want, the longer you remain invested the more chances you have of achieving higher,long-term capital gains. The ULIP performance heavily depends on the performance of its underlying assets. ULIPs in equity in mutual funds that invest in equity related instruments and debt related instruments. The performance of such mutual funds is highly dependent on market movements. It is said that if you want to beat the market’s volatile nature, it is best that you remain invested for the long run. Market volatility can affect the performance of short term investments, but it might be able to hurt long term investments that much. Long term investments are also known for being strong enough to beat the inflation monster as well.


If you have some monetary urgency and think that you may not be able to hold on to your ULIPs for more than five years, it’s alright. However, do not surrender the ULIP before its lock-in period. Investors are offered a certain surrender value which is mentioned in the offer document, which you receive after completion of the lock-in period. However, if you surrender your ULIP before the lock-in period, there will be repercussions. You will not be able to enjoy the benefits which you are entitled to and hence, it is better that you remain invested in your respective ULIP schemes till the mandatory lock-in which is 5 years.


Apart from the fact that you will lose several post lock-in benefits. There are certain ULIP charges that will be levied on those who surrender their ULIPs prematurely. There are Discontinuation Charges levied by the insurance company you buy the ULIP from. These charges are subtracted from your accumulated sum. Post this, the remaining accumulated corpus is transferred to the Discontinuation Policy fund. Here, an additional 0.5 percent charge is levied on the DP fund corpus. These are fund management charges and are applicable to everyone whose accumulated corpus lies in the DP fund. The accumulated corpus then continues to attract interest of 4 percent till the lock-in period is over. Isn’t staying invested for 5 years a better idea than going through all this.


Also, if you feel that you may not have the patience for such a long commitment, reconsider before investing in a ULIP.