The Indian financial markets host a plethora of investment options, many of which offer a variety of benefits to investors. Among these are ULIPs or Unit Linked Insurance Plans, which offer investors the dual advantages of insurance and investment. Before you invest in ULIPs, it is important that you understand how they are structured and what the main jargon associated with them stand for.
So, let us begin at the basics.
What is ULIP?
If you are planning to invest in the Indian financial markets, one of the primary questions you may be looking at answers for is this: what is ULIP? You see, a Unit Linked Insurance Plan (ULIP) is a unique and hybrid investment option that combines the advantages of both life insurance and investment.
In other words, your premium is invested in the financial markets and is also directed towards providing you with a life cover. The premium that is invested is parked in market-linked instruments, so the returns that you get are linked to the market’s movements. As the policyholder, you have the option to choose from among investing in equity funds, in debt funds, or even in both. Each Unit-Linked Investment Plan consists of a different set of funds. When you invest in a ULIP, you are allocated a certain number of units in the ULIP funds that you choose.
In 2010, the Insurance Regulatory and Development Authority of India (IRDAI) made changes with regard to the lock-in period of ULIPs. Earlier, Unit Linked Insurance plans had a lock-in period of 3 years. That was increased to 5 years. Therefore, now, ULIP insurance come with a minimum lock-in period of 5 years during which withdrawals are not permitted. It is important to keep in mind that ULIPs are one of the preferred investment options for achieving long-term financial goals, so you can truly reap the benefits of ULIPs if you remain invested for the entire term of the policy.