What is a ULIP policy and why should you invest in one?
A ULIP, also known as a Unit-Linked Insurance Plan, is essentially a financial instrument that combines the elements of insurance and investment. In addition to providing you with a life cover, a ULIP also gives you the opportunity to create wealth by investing your premiums in the financial markets through funds of your choice.
There are several advantages that you stand to enjoy by investing in a ULIP. Here are a few of them –
1. A ULIP plan could be one of the preferred option for long-term market linked wealth creation to achieve your life goals.
2. It offers you an insurance cover.
3. A ULIP comes with several tax benefits under sections 80C and section 10(10D) of the Income Tax Act, 1961 subject to conditions specified therein.
4. It helps inculcate some much-needed financial discipline in terms of a savings habit.
Four factors that will help you compare ULIP plans in India
When you are out to compare ULIP plans in India, it is advisable to choose a ULIP that offers maximum flexibility with respect to the premium payment frequencies. This way, you can easily select the option that suits you the best.
1. ULIP NAV and fund performance
The ULIP NAV is another factor that most people take into consideration when comparing multiple plans. Although you might be tempted to invest in a ULIP with a low NAV, you should know that it might not always be the right option. While a ULIP with a lower NAV allows you to purchase more units of the fund, what matters the most is the fund performance.
Therefore, when you compare ULIP plans in India, it is important to first check the fund’s performance before looking at a ULIP NAV. The ideal way to go about this is to take up the past 5 years’ performance metrics of the funds to get a basic overview of how it has fared during the various ups and downs of the market. While the past performance of a fund may give you a fair idea of the amount of returns that you can expect from it, it is not always a guaranteed indicator of its performance in the future. Once you are satisfied with the fund performance, only then should you move on to comparing the ULIP NAVs to determine the one that is right for you.