ULIPs as an investment proposition!

Why you should invest in ULIPs | Aviva India Blog
Note: For ULIP policy, the investment risk in the investment portfolio is borne by the Policyholder. The linked Insurance Products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender/withdraw the monies invested in linked Insurance Products completely or partially till the end of the fifth year.

Benefits of ULIPs

1.Life Cover

Undoubtedly, the biggest advantage ULIPs hold is that in addition to being a sound investment alternative, it also hands the individual life cover. ULIPs serve the dual purpose of providing life insurance combined with savings at market-linked returns. This entails that if something unfortunate were to happen to you, your dependents won’t be stranded and their future won’t be hampered. ULIPs will help you meet your life goals while also keeping your family financially secure in case something untoward were to happen to you. Furthermore, ULIPs also gives you the added benefit of attaching a rider such as an accidental death benefit, disability benefit, and critical illness to further customize your plan and get additional protection.

2.Tax Implications

ULIPs are a tax-efficient investment and have been exempted under the LTCG tax rate India regime. This means investors can continue reaping all the tax benefits that ULIPs bestows upon them. For premiums paid, ULIPs are exempt up to Rs. 1.5 lacs under section 80C of the Income Tax Act. Investors can also enjoy partial withdrawals in the times of emergencies which are again tax-exempted.*

*Note: Tax benefits are as per prevailing tax laws which are subject to change from time to time.

3.Lock-in Period

Being an insurance product, ULIPs generally come along with a lock-in period of 5 years which means that you are allowed to withdraw your money only after the completion of the said term. ULIPs help instill a sense of discipline in your investing habits.  Moreover, when you invest for the long-term, it makes it possible to absorb the market risks while also allowing for your money to grow faster owing to a longer time horizon

4.Switching

By investing in a ULIP, you are handed the flexibility of opting for several fund options where you can invest as per your risk profile. ULIPs come built with switching and redirection features which hands you an option of transferring your money from one fund to another. An investor can choose between equity, debt and balanced fund options. Switching is helpful especially during volatile markets thereby ensuring the optimum performance of your invested amount. You can even top-up your ULIPs during a bull-run in the market by investing an additional amount over and above your regular premiums thus allowing you to reap the benefits of a well-performing market.This way, you can actively monitor your investments and maximize your returns.

5.Volatility and Risk

ULIPs are primarily insurance products with an investment component built-in thus making them less risky in comparison. Additionally, ULIP fund managers generally adopt a conservative and less-riskier approach as compared to mutual funds where managers tend to follow aggressive investment strategies in order to generate superior returns.

6.Charges

It has been long perceived that ULIPs charge high premium allocation and fund management charges (FMC) which results in meager returns. While this did happen a long time ago, today the situation has taken a turn for the better as IRDAI mandates that the total effective charges on ULIPs should not exceed 2.25 per cent (if the policy term is greater than 10 years).

Final Thoughts

ULIPs are an exceptional mix of modern as well as traditional investments options which make ita great investment choice. Investing in ULIPs undoubtedly makes more sense as they are not only tax-efficient but also safeguards your family against any possible eventualities thus making it an all-in-one investment solution.

Disclaimers:
*Taxes are subject to change as per tax laws.
*In the policy the investment risk in the investment portfolio is borne by the policyholder
AN Oct 9/18
 
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