Life is uncertain, and you do not know what the future holds. Therefore, it is essential to secure your family’s financial wellbeing. You have the choice to select from numerous investment instruments, like fixed deposits, mutual funds, and Public Provident Fund (PPF) among others. However, if you are looking for a product to build a high corpus and meet your future monetary requirements, a Unit-Linked Insurance Plan (ULIP) is an excellent investment option that will help you get your life goals done. It is one of the most popularproducts today, as it provides higher returns as compared to other investment avenues.
Let us first talk about what is ULIP plan before discussing its features and benefits.
ULIP is an investment instrument that offers the dual advantages of insurance and investment. Apart from providing life insurance, it helps to grow your wealth by investing in equity, debt, or balanced funds.
How ULIPs can help you in generating lucrative returns
Here are a few advantages of ULIP that make it a useful investment option, when it comes to earning profitable returns in the long run.
- Helps in optimizing asset allocation
If you want to reduce the risk to return ratio to a great extent, you need to optimize your asset allocation plan correctly. In simpler terms, asset allocation implies diversification of investment in different asset classes. Investing your hard-earned money in the right asset classes reduces the risk drastically, allowing you to earn better returns in the long term. With ULIPs, you can invest in different asset categories, like equity and debt, according to your risk-taking capacity and financial objectives.
- Provides benefit with the power of compounding
By investing in ULIP, you can avail of the advantages of compounding over a long tenure. As ULIP has a mandatory lock-in tenure of five years, it is an ideal investment alternative if you plan to stay invested for a long period. Compounding grows your investment significantly. In this case, the income earned from initial investments is reinvested to achieve better returns. This cycle allows you to build a corpus that can take care of your future monetary requirements.
- Generates significant returns during the long-term
If you remain invested for the long term, typically for ten to fifteen years, you can expect a minimum return of 10-12%. ULIP returns are superior during a long duration as compared to any other investment options available in the market, making it one of the attractive wealth-generation tools.
- Offers tax deductions
ULIP is a tremendous tax-saving investment instrument. You can avail of tax exemptions on the premium paid and the amount that you receive on maturity. As per the Income Tax Act 1961, the premium that you pay is eligible for a deduction under Section 80C. The maximum permissible limit is INR 1.5 lakh per annum. Besides this, the amount that you earn on maturity is tax-free underSection 10(10D) of the Act.
- Provides flexibility
It means that you can switch from one market-linked fund to another. For example, you can shift your investment in equity ULIP funds to debt or hybrid funds and vice-versa. This flexibility in switching helps you avert the risk that can arise due to the equity market’s volatility. Many insurers offer free switching of funds. However, you will have to pay ULIP chargesif you exceed the limit of free switches.
Apart from building wealth, ULIPs provide life insurance coverage to help secure your family’s financial wellbeing.Moreover, the ULIP returns are comparatively better than other investment options, making it an efficient and noteworthy wealth creation tool. Invest in the right type of ULIP and start building a corpus, which can be handy in the future.