Top 5 Benefits of Investing In ULIPs
February 11, 2019 (Investorideas.com Newswire) If you are also one of those last-minute tax planners, make sure that you have directed your tax-saving investments towards your long-term financial goals.
Income tax not only reduces your take-home salary but it also puts a dent in your investment returns. This is the reason that it's important to invest in well-thought and well-planned investment options that will help you increase your income as well as will help you achieve your financial goals.
To find a good tax saving option, you need to assess a lot of factors like its lock-in period, maturity period and rate of return. Most of the debt instruments such as endowment policies, etc. usually come with maturity periods of 10 to 20 years.
At the same time, though government-backed investment instruments such as Public Provident Fund (PPF), National Savings Certificate (NSC) and Sukanya Samriddhi Yojana offer a fixed return rate; they, also come with different lock-in periods viz. five (5), fifteen (15) and twenty-one (21) years, respectively.
Here, it's important to understand that the rate of return of these saving schemes is determined every quarter. These interest rates are effective since Oct-Dec 2017.
As per experts, ULIPs (Unit-Linked Insurance Plans) and ELSS (Equity-Linked Savings Schemes) - equity-oriented schemes are always said to be a better instrument compared to others. On one hand, ELSS is a tax-saving mutual fund; whereas, ULIP investments let you invest in the stock market through a blend of equity, balanced, and growth schemes.
Here's a look into top 5 benefits of investing in ULIPs that can help you save better for your long-term financial goals:
1. Lock-in Period
ULIP funds usually have a lock-in period of 5 years. It eventually helps you develop a habit of disciplined investing. Moreover, since ULIP is a long-term investment, your decision to invest in a single ULIP will help you in the long run.
The lock-in period in a ULIP starts from the date the policy is purchased. You can pay your premiums either on a monthly or annual basis as a lump sum amount.
2. Better Returns
Because of its equity-oriented nature, ULIPs have the potential to provide better returns compared to other insurance tools. The premium amount paid by you is invested by ULIPs in different assets through separate funds.
Funds focussed on tax-savings, that are offered by ULIPs have also given astounding two-digit returns. However, it's important that you look for a new fund each year, in case you are going to make a one-time investment.
The maturity amount from your ULIP investment will depend on the performance given by the equity market during the tenure of your ULIP investment. Tax-efficiency is an added advantage with ULIPs wherein the maturity amount given to you is absolutely tax-free.
Whereas, if you will look into the peers of ULIP such as tax-saving fixed deposits (FDs) - they also come with a 5 years' lock-in period. However, the returns given in these schemes are added to your income. Thus, making it a taxable amount depending upon the tax bracket you fall into.
ULIPs provide the investors with the option of switching funds during the tenure of the plan. You have different options to choose from including your income funds, growth, equity depending on your risk appetite and financial goals. Normally, ULIPs provide 4 switches per year at free of cost.
Like shares, you don't have to keep a track of companies your fund invests in. You simply have to select the policy, change the allocation of your funds according to your convenience and run it till the ULIP matures to reap its benefits.
4. Dual Advantage
If you compare ULIPs to term insurance, besides the life cover and tax-savings parts, they also offer you earn decent returns on your investment. Again, besides the tax benefit of up to Rs 1.5 lakhs u/s 80C of the Income-tax Act, ULIPs also prove to be instrumental to achieve long-term financial goals.
5. First-time Investors
Investors who were only comfortable with FDs and initially focussed FD-oriented investment schemes are also moving towards ULIP investment and identical investment schemes. With the changes in investing style of people, choosing a market-linked scheme like ULIP proves to be reliable for the new investors.
All in all, new guidelines issued by IRDAI (Insurance Regulatory and Development Authority of India) have established ULIP funds as a more investor-friendly scheme as compared to the time they were first introduced. Different costs like administration charges, premium allocation charges, fund management charges and surrender charges have been reduced.
Because of the funds' diversity it offers, ULIPs are seen as a great wealth-creating tool for long-term goals. These are also ideal for individuals who want to start young and earn well on equity advantage.
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