Similar to mutual funds, ULIPs are also market-linked products. However, the added advantage of the ULIP plan is that it also offers insurance coverage to the family of the insured against any type of eventuality. The investment returns are directly proportional to the fund performance during the tenure of investment, which is determined by the prevailing market sentiments.
Since the time the ULIP was introduced in India's financial system, the product has undergone multiple corrective changes like return efficient, cost-effective, etc. to meet the requirements of the current buyers. Equipped with the right mix of transparency, flexibility, ease of onboarding, and low-cost structure, ULIP is gaining huge popularity among customers and fulfilling every new age requirement of the customers. Further in this article, we will elaborately discuss why ULIP plans are considered the best investment option for wealth creation.
Lock-in Period
To accumulate for the long-term it is important to invest in a disciplined way for the long-term. ULIP plans come with a lock-in period of 5 years, which helps to initiate the habit of disciplined investment among investors. As ULIP is a long-term insurance product investing is a single ULIP is beneficial. Unlike ELSS, you can purchase the ULIP plan once and can enjoy the benefit of tax exemption every year till the completion of the premium payment term.
It is important to keep in mind that even though ELSS comes with a short lock-in period of 3 years, the amount invested in it is the first year can be withdrawn in the 4th year. Thus any investment made in ELSS in the form of monthly, yearly, or lump-sum investment can be withdrawn only after completion of 3 full years. On the other hand, in the ULIP plan the lock-in period of computed from the policy initiation. You can choose to pay the premium monthly or yearly.
Flexibility
As compared to other investment plans, ULIP plans offer the advantage of flexibility among investors. ULIP plans offer the option to the investors to switch between funds as in when required. The individual can choose between balanced, equity, or income funds as per their risk appetite and financial goal. Moreover, if they are not satisfied with the performance of the fund then they can make free switched between funds up to a certain limit. This flexibility is not offered in any other market-linked investment products. Unlike shares, you do not need to keep a track of companies where you have invested. You can just choose the policy and change the allocation of the fund anytime during the policy tenure and can continue with it till maturity to gain the benefits of investment returns.
Potential of Better Returns
ULIP plans have the potential to gain better returns as compared to any other insurance products due to its advantage of investment in equity. In the ULIP plan, a part of the premium paid by you is invested in different asset classes to gain profitable returns on investment. The maturity amount offered by the ULIP plan depends on the market performance of the equity fund during the policy tenure. Alternatively, endowment plans are also designed to pay a lump-sum amount as maturity benefit. However, due to its feature of capital protection and savings, the returns generated by these plans are very low and do not beat inflation.
Not only this, but ULIP plans also excel in terms of tax savings. In the ULIP plan, the premium paid towards the policy up to the maximum limit of Rs.1.5 lakh is tax-exempted U/S 80C of the Income Tax Act. Moreover, the maturity benefit is tax-free in the hand of the insurance holder. Thus, this makes ULIP a profitable investment option among peers. The tax savings fixed deposit schemes also come with 5 years of lock-in period however, the returns are added to the income and are taxable as per the income bracket.
Dual Advantage
This is one of the major advantages offered by the ULIP plan, along with the benefit of investment return and tax-savings ULIP plans also provides insurance coverage to the family of the insured against any type of eventuality. A part of the premium paid towards the ULIP plan is used to provide insurance coverage to the family of the insured in case of unfortunate death of the insured person during the policy term. Thus, along with the benefit of wealth creation in the long-term you can also ensure financial safety to your loved ones even in your absence.
Tax Exemption
The ULIP Plan not only offers an opportunity to create wealth in the long-term but it also provides you the advantage to save on taxes. The premium paid towards the ULIP plan is applicable for tax exemption up to the maximum limit of Rs.1.5 lakh U/S 80C of the Income Tax Act. Similarly, the returns generated as maturity benefit is also applicable for tax exemption U/S 10(10D) of the Income Tax Act. Thus, the ULIP plan also provides you the advantage to add funds to your kitty through tax saving.
Long-term Investment Benefits
A ULIP plan is one of the best options of investment for individuals who are looking to earn the maximum return on investment they make in the long-term. It is important to understand that the fluctuations and market-volatility can have an impact on the returns in the short-term. However, keep investing for a longer tenure makes it easy for the investors to deal with the market volatility and generates a high rate of return on investment. A unit-linked insurance plan allows you to make a long-term investment and makes it simpler for you to reap the maximum returns on the investment.
The Bottom Line!
Before investing in the ULIP plan every investor should evaluate their long-term financial objectives. Investment objectives are extremely important. Thus, it is important to make a smart investment choice so that you can achieve the financial goals and create ample funds for a secure future.
