How ULIPs Help You Plan for Long-Term Financial Goals
Inflation has led to a surge in expenses. In addition, with the ever-increasing economic aspirations, people are on the lookout for a financial instrument that can maximize their returns on investment. Traditional investment products like PublicProvidentFund (PPF) and fixed deposits offer low-interest rates, and therefore, they may not be efficient in meeting your long-term financial goals. A Unit-Linked Insurance Plan (ULIP) is one such alternative that can provide you with higher returns on investment in the end.
If you wish to know the ULIP meaning, then let us explain it to you. It is a type of insurance policy that offers dual benefits of insurance and investment. Investing in ULIP is an ideal option, as it can offer better returns than other instruments. A part of the amount paid towards the premium is towards equity, debt, or a mixture of both as per your risk-taking capability.
How can ULIPs help to achieve your long-term financial goals?
A ULIP policy is structured in such a manner that it can help you increase the returns on investment if you stay invested in for a minimum duration of ten years. Here are some essential factors of ULIP that can help you meet your future financial objectives.
- Market-linked returns
When you buy ULIP insurance, a part of your money is invested in equity funds, debt funds, and or a mixture of both based on your risk-bearing appetite. Moreover, ULIP provides the flexibility of switching from one fund to another. Therefore, if you have invested in the equity market, you can transfer your investment to a debt fund to control the equity market’s risk or fluctuations. Therefore, the chances of you earning high returns on investment are significantly more while investing in ULIPs.
- Tax benefits
Under Section 80C of the Income Tax Act, 1961, the premium paid towards the ULIP policy is eligible for a tax deduction. Besides this, the income that you earn by investing in various funds is tax-free. In case of any untoward incident, the life insurance cover that your nominees will receive is also tax-exempt under Section 10(10D) of the Income Tax Act, 1961.
- Power of compounding
Compounding is a process where an income earned from interest or capital gains is re-invested to generate extra revenue in the end. Therefore, it is advisable to buy a ULIP to reap the maximum benefits of compounding at an early age. Though ULIP has a mandatory lock-in period of five years, it is wise to remain invested for a long-term tenure of ten to fifteen years to maximize your returns on investment.
- Opportunity to save
When you invest in ULIP at a young age, you have the ultimate benefit of time. Investing in a ULIP is a systematic way to save for life goals that you may have set for the future. By doing this, you will reduce the pressure of investing a considerable sum later in life to meet your long-term financial objectives.
- Platform to build a large corpus
Compounding enables you to generate and amass a significant corpus that can help you meet your future financial goals. When you grow old, you will require money to buy a house, fund your child’s education, and finance their wedding, among other ambitions. A ULIP lets you withdraw a part of your investment to meet such financial goals once the lock-in period of five years is over.
- Top-up facility
If you already have a ULIP, you can purchase a top-up premium in the future when you are at the peak of your career. You can invest this top-up premium in a suitable fund, which can help you earn better returns. If you have a surplus amount to invest, it is advisable to put your money in high-performing ULIPs to accumulate a large corpus in the future.
ULIP is one of the most popular investment instruments available in the market because of the various benefits. All these aspects associated with a ULIP help you grow your investment and meet your long-term monetary targets and requirements.