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Long term investment plans - What Are Their Benefits?

By : Bajaj Allianz Life

A suitable financial plan may be defined by its components. Amongst other things, one aspect, it may be incomplete without, is a steady amount of investment. While savings may help in the short term, investments may be essential for the long term. Whether it may be to battle the rising inflation rates or to meet large-scale financial goals, the significance of long-term investments may not be overlooked.

Another component of a suitable financial plan may be the presence of considerable insurance coverage. Without a backup to look after your loved ones in your absence, they may have to face difficult challenges. If you are looking to hit two targets - long-term investing and life insurance coverage - with one stone, you may want to consider investing in a long-term plan like Unit-Linked Insurance Plan (ULIP).


What Is the Meaning of Long-term investments?


Long-term investments may be understood as investments held for a sustained period of time. You may want to think of a long-term investment plan as a tree you have planted. If you water it with the right amount of money, it may grow in the direction you want. The more time you allow it to grow, the higher fruits it may yield in the long term. If you invest in a ULIP for the long term, you may not only get a chance to earn good market-linked returns but also receive life coverage for a long duration.

While long-term investment options may be beneficial, one may not overlook the fact that, ultimately, they may be subject to market fluctuations, too. Money invested in the market, especially in equity instruments, may have elements of risk. The ups and downs of the market may affect your investments, too. Hence, one may choose to invest with caution and after obtaining expert advice.


Benefits of Long-Term Investments


When you opt for long-term investment options, you may enjoy the following benefits:

• Power of Compounding

One of the main reasons your money may grow better in the long term may be due to the effect of compounding. It involves the process of earning returns on your principal investment amount as well as on the returns you may have earned previously. Thus, the longer you park your money, the effect of compounding may be higher as the returns keep on accumulating based on previous returns.

• Security from short-term volatility

If you hold your investments for a short duration only, they may be subjected to market volatility on a higher level. This may be because your investment may have a shorter time frame to recover from a slump or to benefit from a rise in the market. Money parked for the long term may have a longer time frame and thus, a better chance of combatting such short-term volatility.

• Goal-centric planning

If you are investing in the market for a particular reason, such as to fund your daughter’s university education abroad, opting for an investment plan early and holding it for the long term may help to finance that goal. If the plan is to send your daughter abroad when she is 20 years old, it may be prudent to buy a plan when she is 5-10 years old.

The considerable time period involved may allow your money to grow substantially, due to the effect of compounding and security from short-term volatility.


Why Consider ULIPs as Long-term Investment Options?


Out of the many investment avenues available, a ULIP can be a suitable option. You may enjoy the following benefits with a ULIP:

• A chance to try different market-linked funds with a probability of enhancing returns

Long-term investments may give you more chances to try different funds. ULIPs may be a suitable long-term investment for this specific reason; they may not only offer the opportunity to invest in different market-linked funds, such as equity, debt, or a combination of both but also the option to switch between them as per your needs.

For instance, you may have invested in debt options as a beginner to investing. However, now you may have learned a lot about investments and the market, and you may feel your debt options have not been able to give you the returns you want for the last 3-4 years. So, you may simply opt for the fund-switching feature of ULIP and transfer your parked money from debt to equity. You may opt for this feature subject to terms & conditions of the policy.

You may want to give equity options a try for a few years to see if they are a suitable fit for you.

• Partial withdrawals feature for short-term goals

Investing for the long term may not have to mean your short-term goals get overlooked. Certain long-term investments, such as ULIPs, may allow the investor to make withdrawals from the investment corpus, as per the terms and conditions under the plan. There may be limits on how much amount you may be able to withdraw based on your corpus.

In a ULIP, one may be able to make partial withdrawals only after the mandatory lock-in period of 5 years may have passed. With the help of these partial withdrawals, you may fund your small-scale, short-term goals.

• Tax benefits[1][2]

One notable advantage of holding a ULIP for the long term may be the tax benefits you may keep enjoying each year. Since a ULIP is a life insurance policy, its premiums may be eligible for tax deductions up to Rs 1.5 lakhs under Section 80C of the Income Tax Act, 1961.

Furthermore, the death benefit payout and maturity proceeds may be eligible for tax exemption under Section 10 (10D) of the Act. However, for you to enjoy these tax benefits, your ULIP premium may not be more than 10% of the death sum assured if the plan has been bought after 1st April 2012. The limit may be increased to 20% of the death sum assured for policies bought before 1st April 2012.

Also, if the aggregate annual premium of a ULIP purchased on or after 1st February 2021 is more than Rs 2.5 lakhs, the maturity proceeds will be taxable as capital gain in the hands of recipient. If ULIP policy is issued prior to 1 Feb 2021, proceeds from the policy will be tax free in the hands of recipient subject to satisfaction of conditions as mentioned under Section 10(10D) of the Income Tax Act.

Some tax benefits may only be applicable to taxpayers under the old tax regime. These tax benefits are subject to terms and conditions and amendments in tax laws.


When Should One Opt for Long-term Investments?


One may add long-term investments, to their financial portfolio as soon as one can. As explained earlier, the longer your money stays parked, the higher benefits you may enjoy.

Before you invest in any plan, you can review several points regarding your current and future finances. You may consider the expenses and liabilities you have at the moment or what you expect to have in the future. What also may be taken into consideration are your goals and the time horizon you may have for them. For instance, planning for retirement may have a longer time horizon if you are in your 20s or 30s. On the other hand, buying a house may be a long-term goal but may have a shorter time horizon.




Long-term investments may be immensely beneficial if handled with the right approach. It may help you to understand the nitty-gritty of different market-related instruments before you start investing in them. Consulting a financial advisor may also prove helpful.





#Survey conducted by brand equity – Nielsen in March 2020

~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

**Past performance is not indicative of future performance.

IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER. Investment in ULIPs is subject to risks associated with the capital markets. The policy holder is solely responsible for his/her decisions while investing in ULIPs.

Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.