How To Invest Money In ULIP?
“I am looking for safe investment options.”
“I want to pick financial instruments that give me good returns over years.”
“I don’t want to go overboard with investment as I don’t want to take risks.”
These are the common concerns of individuals when they talk about investing their money. The prime intent of making investments is to get returns to manage future expenses. Safety is the word that strikes the mind of people when you talk about investment.
Though the market is flooded with financial products that offer variable returns. Out of all, ULIP is one product that gives dual benefits of insurance as well as investment.
If higher returns are what you aim at, ULIP makes a favourable choice.
Let us explore further what is ULIP and how to invest in it?
Table of Contents.
What is ULIP?
How can you invest in ULIP
Few Benefits of investing in ULIP
What is ULIP?
ULIP is a unit-linked insurance plan that comes with a double benefit of insurance and investment. The premium you pay for the insurance policy is divided into two. One part of the premium goes to provide the life cover, while the other part of the premium goes into investment. The premium is invested into market-linked instruments that include equity, debt, or combined funds.
How can you invest in ULIP?
Before investing in ULIP, people have always feared investments because the stock markets are volatile. It is not favourable for risk-averse investors and those who look for stable returns. On the other end of the line is debt funds that are for individuals who wish to receive standard returns. Keep these things in mind when you are willing to invest in ULIP:
- If you are looking for long-term investments and have the courage to face the brunt of the market, equity funds are a suitable option.
- On the other hand, debt funds are a safe option, but the proportion of returns may not be high. It is an option for those who want to remain invested and keep their money safe.
- For those who look for stable returns, putting the money in both equity or debt funds will give you balanced output.
- When planning to switch between the funds, ULIP again turns out to be a favourable option. You can protect your funds and balance the investment portfolio. For instance, if you see a dip in the stock market, you can conveniently switch from equity to debt funds. Insurance companies allow for more than one switching free, so when you see the stock market rising again, you can switch back to equity funds.
- You invest money in life to reap the benefits and support the important milestones of your child’s life. When the policy is approaching maturity, or you are close to achieving a milestone, that is the time when you should look for switching to debt/liquid funds.
Once you are sure of how to invest in ULIP, you must also know the benefits of investing in ULIPs.
Few benefits of investing in ULIP.
Unit Linked Insurance Plan offers you several advantages. These are the benefits of investing in ULIP:
- Life Protection, Investment and Saving: ULIP offers dual benefits of insurance and investment. If anything happens to the life insured, the nominee gets the sum assured along with the value of the funds. The investment component in ULIP allows you to build long term wealth and savings. Investment benefits come out suitable with ULIP when you invest for long years.
- Market-Linked Returns: The returns you earn after investing in ULIP are governed by the market. Considering the profitability of different ULIPs, you have the choice of making an investment in equity or debt funds.
- Flexible investment option: With ULIPs, you get high, medium and low-risk investment options. Considering your risk absorption capacity, you can pick the funds for investments. You can also choose the investment options based on your sum assured and the premium paying capacity.
- Transparency: ULIP offers complete transparency to the investors before they buy the product. The charge structure and rate of returns for the complete tenure of the policy will be shared by the product. The insurance company also shares with you the account statement and the NAV to ensure that you have the investment portfolio information all the time.
- Liquidity: The ULIP comes with a lock-in period of 5 years. It indicates that you can withdraw the funds only after 5 years.
- Disciplined and Regular Savings: ULIP is a way that encourages you to save regularly. The insurance policy enables you to create wealth for your long term needs.
- Easy Switching of funds: A ULIP policy is a gateway to switch between the invested funds depending on your risk appetite. If you are risk-averse, you can invest money in the debt funds. The returns with these funds are more stable. On the other hand, if you look for high returns, you can choose equity funds.
- Tax Benefits: The premium paid towards the ULIP is tax deducted under Section 80C of the Income Tax Act, 1961.
After reading the benefits of ULIP, it is important to know the relevance of the wealth calculator in ULIPs.
Wealth Calculator for ULIPs
The wealth calculator in ULIP is a tool that helps insurance buyers to compute the premium and check the ULIP returns. Depending on the premium amount and the policy’s tenure, the ULIP wealth calculator provides you with the total money you will need in the end. Using the calculator, you can easily calculate and compare the requirements’ plans. Some of the benefits of a wealth calculator include:
- It gives you a transparency of how much money you have to accumulate monthly/yearly for wealth creation.
- The wealth calculator is simple and free of cost.
- The calculator helps the investors to know in which fund option they should invest the money for their long term or short term goal.
Let us understand this with an example. Suppose you are willing to invest money in ULIPs. The amount you wish to invest is Rs.10,000/- and this amount will be invested for 10 years. You want to keep the money invested for 20 years. The rate of return you expect is 8% per year. Per year your investment is Rs.1,20,000, and for 10 years, it becomes Rs.12 lakhs. So under a ULIP, you invest Rs.12 lakhs, and you get Rs.39.8 lakhs after 20 years.
ULIPs are the safe way of making investments when you are looking for an investment cum insurance option. They either have to choose the automatic switching mode to manage their investments. The insurance companies allow investors/policyholders to manage the fund switches through self-service facilities. But for market-savvy investors, optimising the risk and returns is a challenge. Hence, they choose the ‘automatic switching’ or ‘wheel of life’ portfolio. Under this, the insurance company’s fund manager takes care of switching between the equity and debts keeping in mind the view of the market. If you are an avid market investor and look for insurance security at the same time, read here.