How to better your financial goal with Investment Planning

What are ULIPs?
 

Unit-linked insurance plans, or ULIPs as they are popularly called, are savings-oriented plans. They help you get exposure to market-linked securities through diversified funds and earn returns on investment. There is also the insurance aspect, which provides a financial benefit if the life assured passes away during the policy tenure. As such, ULIPs double up as savings-cum-insurance plans and can be a good choice for investment planning.

Why choose a ULIP for investment planning?
 

Some of the reasons for choosing a ULIP for investment planning are as follows –
 

1. Insurance and investment
 

As mentioned earlier, ULIPs combine the dual benefits of insurance protection and market-linked returns. As such, while you save and grow your corpus for your financial goals, you can enjoy insurance protection against unforeseen eventualities. This insurance coverage can help fulfil your financial goals even in your absence.

2. Different types for different needs
 

There are different types of ULIPs available for different needs. For instance –

• Endowment ULIPs help with saving for financial goals
• Child ULIPs help you create a corpus for your child’s future needs
• Pension ULIPs help in retirement planning

As such, you can choose a suitable plan based on your financial goals.

3. Flexibility
 

ULIPs offer complete flexibility in terms of choosing the policy details and also with managing your savings. Here’s how –

• You can choose the premium you want to pay for the policy, and the sum assured will be determined based on this amount.
• The choice of the policy term, premium payment term, and frequency are also yours.
• You can choose your ULIP fund out of the different types of funds offered based on your risk profile.
• You can choose to switch between the funds if your risk appetite, investment preference or market trends change.
• You can make partial withdrawals during the policy term
• Many ULIPs offer a top-up facility, which allows you to pay top-up premiums for additional investments
• You can avail the maturity benefit in instalments through the Settlement Option feature available under many plans

This flexibility allows you to invest and manage your fund value per your changing needs.

4. Tax benefits
 

There is the obvious tax benefit too which helps in efficient tax planning. ULIPs allow you to save taxes on the premiums paid under Section 80C under old tax regime subject to specific terms¹. Switching is tax-free² and so are the benefits paid under the policy³ subject to terms and conditions. This helps you create a tax-efficient corpus for your financial goals.
 

How to do investment planning with ULIPs?
 

Here are some ways to do investment planning with ULIPs –
 

A. Identify your goal
 

Before you use ULIP, it is important to identify the goals for which you want to create a fund. This will help you choose the right ULIP. For instance,

• If you are looking to create a corpus for your child’s higher education or marriage, choose child ULIPs
• If you want to save up for retirement, pension ULIPs might be a better choice. For any other goals like buying a home, a vehicle, estate planning, etc., you can choose endowment ULIPs

Pro tip: Besides identifying your goals, also estimate the funds required for each and their horizon. This will help you find out the savings needed to create the desired fund and you will also know your investment horizon to choose the right policy tenure.

B. Assess your risk profile:
 

Different investors have different risk appetites. Some might love taking risks, while others might be averse to them. Yet some investors prefer to take moderate risks.

Identifying your risk appetite will help you choose the right fund in your ULIP. For instance:

• a. If you like taking risks, you have a high-risk appetite. Based on their return potential, you can choose equity-oriented funds.
• b. If you are risk averse, you can choose debt-oriented funds that have little to no equity exposure and offer stable returns.
• c. If you are on the moderate risk-taking spectrum, you can choose hybrid funds, which combine equity and debt.

 

C. Diversify:
 

Diversification means investing your savings in different asset classes with different risk profiles. This helps mitigate risks while enhancing your portfolio's return potential.

As ULIPs offer different types of funds, you can diversify your premium across these funds. You can combine equity and debt funds in a proportion that aligns with your risk appetite and enjoy the benefits of both equity and debt funds.

D. Monitor and manage
 

With the different flexible options allowed under ULIPs, you can monitor and manage your fund value to factor in changes.

For instance,

• You can switch between the existing funds if you want to increase your equity or debt exposure.
• The premium redirection option is available for future premiums to be invested in a different fund.
• If your fund is doing well and you want to save more, you can do so through top-up premiums.

Pro Tip: Since switching from equity to debt and vice versa has no tax implications², rebalancing a portfolio across the various asset classes can be done very effectively without any hassle, and this is one of the unique advantages of buying ULIPs.
 

Conclusion
 

It is easy to do investment planning with ULIPs, given their benefits. You can choose different funds and diversify your portfolio with a single plan. The insurance coverage adds value to the policy, and the different types of ULIPs help you create an earmarked corpus for your goals.

So, use ULIPs for investment planning and manage your finances efficiently.

FAQs

1. What is the primary benefit of a ULIP?

Some of the benefits of a ULIP include the following -

• Insurance protection
• Flexibility in choosing the policy details as well as managing the fund value
• Market-linked returns
• Tax benefits
   

2. Is ULIP a good investment avenue?

ULIPs are an insurance-cum-savings avenue that can help you save up for your financial goals and also enjoy financial security against unforeseen circumstances. ULIPs also help you earn market-linked returns on your premiums so that you can build up a good corpus for your financial goals.
 

3. Who faces the investment risks under ULIPs?

ULIPs do not guarantee returns. As such, the risks are borne by the policyholders.