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Advantages of investing early in ULIP plan

July 18, 2018

There goes a saying, The early bird catches the worm'. In literary sense, it means that a person will have an advantage if they do or start something early. In the world of investments it means that the earlier a person starts investing, the more time their money will have to grow. Thus, starting to invest early towards your life goals is one of the best financial steps you can take.

Here are a few benefits of investing early:
1. Power of compounding

Compounding refers to the re-investment of income to generate additional income over time. The longer you stay invested, the higher will be your wealth accumulation. Hence, by investing early for your long-term goals, you allow your money to grow due to the power of compounding.

You can enjoy the benefits of power of compounding through ULIP plan. The lock-in period of 5 years and the long term investment orientation of ULIPs gives considerable time for your funds to compound and grow and your wealth compounds over time.

2. Higher investment corpus

Compounding enables you to accumulate a higher investment corpus in the long run that will help you achieve your long-term goals.

Let's assume that you start investing Rs 5,000 every month for 20 years in Bajaj Allianz Life Goal Assure at the age of 25. Assuming that you choose to invest in Asset Allocation Fund ll with Investor Selectable Portfolio Strategy, your corpus at the age of 45 will be approximately Rs 23 lakhs @8% returns p.a and Rs 13 lakhs @4% p.a. However, if you start investing at the age of 35 with the same amount, your corpus at 45 will be approximately Rs 8.3 lakhs @8% returns p.a and Rs 6.8 lakhs @4% returns p.a. Thus, the longer you give time to your money, the more wealth it can generate in the future.

3. Higher potential of risk appetite for younger investors

As a young investor, you are free from any liability in terms of dependents and hence you have the potential for higher risk appetite. In other words, you can go for ULIP funds with higher exposure in equities. Yes, more equity will mean more risks when the market gets volatile. Still, one can't ignore the fact that where there is risk, there is reward too. Historical track record shows that equities have tended to outperform most other asset classes over the long term, although as mentioned they come with higher risk profile and intermittent volatility as well.

ULIPs keep you floating even in the volatile market conditions. Investors can switch from one particular fund option to another as per the market movements and outlook. Interestingly, many ULIPS allow you to go for innumerable number of switches without any charges for availing the facility, unlike other market instruments.

4. Systematic Savings Habit

Inculcating the habit of saving from the very beginning of your career will help reduce the burden of a higher monthly or yearly contribution towards your life goals in the later phase of your life. With early job opportunities, young professionals today can make systematic investments towards their goals right at the beginning of their career.

Thus, when you are young, you have the biggest advantage of the time being on your side. By investing early you will have better chances of reaching your life goals comfortably.

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