ULIP Investment Plans – Explained

What is ULIP?

A unit-linked insurance plan provides insurance with investment in market linked funds. ULIP plans provide protection along with wealth creation. A professional fund manager handles the investment corpus and investors are provided various ULIP fund options to choose, ranging from debt to equity funds.

You can choose a fund option depending on your long-term financial goal. If the target is wealth creation over the long run, you may choose an equity fund. You can switch your investments between different types of ULIP funds based on your risk appetite and market conditions during the tenure of the policy. Truly, ULIPs are one of the most innovative insurance-investment products ever designed.

Using an ULIP investment plan to achieve your financial goals

Most people familiar with ULIPs know that it is a very effective long-term investment tool. Whether your financial goal is retirement, child’s higher education, buying a home or going for a world tour, ULIPs can be customized according to your life goals, time horizon and risk appetite. Apart from being an insurance, investment and tax-saving tool, a ULIP investment plan can also be used as an effective risk management tool.

You can also maximize the portion of premium investment by buying online ULIPs as these plans come with very low ULIP charges because the insurer is able to apportion the commission towards investment which otherwise would have been paid to the agent.

• Flexibility in investment

ULIPs are very flexible investment plans as you can make as many as 12 free fund switches (applicable on plans from select insurers, in some products there is no capping on the number of switches) during the policy tenure to reallocate funds according to market conditions, time left to maturity and evolving financial needs.

Most ULIP plans allow you the freedom to choose from multiple investment strategies and multiple funds. This gives you ample freedom and bandwidth to maximize returns and protect your investments during market volatility and corrections.

It also allows you to increase your exposure in equity funds to maximize ULIP returns as you start in your investing journey and gradually reduce the exposure to equity as you draw closer to the maturity date.

• ULIP Tax benefits

Many investors do not realize that tax can eat into their returns more than ULIP charges. ULIP plans are free from LTCG tax and eligible for tax deductions under section 80C while the maturity benefit or death benefit is tax-free under section 10(10 D) of the Income Tax Act, 1961, up to a specified amount subject to the provisions stated therein.

Apart from these, life insurance protection, critical illness riders, top-ups and other additional coverage’s are a few of the other options available that make ULIP one of the preferred investment tool for someone who dreams big and invests in a disciplined manner to reach his financial goals in life.

ULIP FAQs

⭐Does ULIP have a high cost structure?

Not anymore. New-age online ULIP investment plans are very reasonable with cost structure. Fund management charges are not more than 1.35% as per IRDAI Regulations. ULIP charges such as mortality charges are now negligible and select insurers provide return of mortality charges. Additionally, there are ULIP plans that provide zero allocation charges and zero policy administration charges.

⭐How do I know how my ULIP investment is performing?

With online ULIPs tracking, maintaining your ULIP investment plan is very easy. According to IRDAI Regulations in this regard, your insurance company has to declare daily Net Asset Value (NAV) of the fund. Some insurers also provide daily insights, fund switching options, withdrawals and top-ups online.

⭐Are ULIP investment plans subject to market volatility?

Fund allocation in a ULIP fund varies according to the choice a customer makes and prevailing market conditions. As ULIPs are market-linked products, market conditions will affect it. That is the reason why ULIP should be utilized as a long-term investment plan to tide price volatility and maximize returns.

Conclusion

As an investor, it is important to have a broader understanding of how the financial markets work. It will help you greatly in the decision making process while you manage your ULIP policy. As ULIPs allow policyholders to constantly monitor and review the progress of their portfolio, you must take maximum advantage of this option. Regular review and monitoring of your portfolio help you to optimize your asset allocation and maximize returns.