While there are a variety of factors that influence inflation and theories about its root cause, for consumers and investors, the end result is the same - prices rise. When prices rise, we cannot buy as much as we could previously. And the ongoing global trade wars and jittery economic conditions are bound to push prices up even more. In such a situation, if you are trying to build a fortune to achieve your financial life goals, it becomes essential to protect your investments from higher inflation rates.
You may be investing for a new suave car, or your dream home, or even for your early retirement. Even if your investments are growing in value, inflation is still reducing that value on the backend. The key to making money in an inflationary environment is to hold investments that increase in value at a rate in excess of the rate of inflation.
While directly investing in equities can give you good returns over a longer period, it requires a lot of time, understanding and research to make substantial gains. Today, Unit Linked Insurance Plans (ULIPs) have emerged as a credible and popular investment plan that can help you beat inflation in the long run.
How ULIPs can help?
ULIP plans offers you flexibility to invest in a portfolio of stock which minimizes risks. Further, you can choose the funds you would like to invest in - equity or/and debt - as per your risk appetite.
Research has shown that stock markets have outperformed inflation and most asset classes in the long run, but carry a higher risk due to intermittent volatilities. As investment in ULIP plans is generally for long-term - the minimum lock-in period is five years - they encourage long-term investments. Regular investments over a long period enable you to give time to your money in market, helping you build a larger corpus to achieve your life goals. This is possible through the power of compounding. Being long-term investments, ULIPs also do not face redemption pressures, offering room for fund managers to design fundamentally sound and disciplined investment strategies.
ULIPs bring a host of other features which can help in minimizing the impact of rising prices. One such feature is the ULIP tax benefits, as up to Rs. 1.5 Lakh of money invested in ULIPs can be claimed as a deduction under Section 80C of the Income Tax Act, 1961 while filing your annual returns. Additionally, you can also take advantage of tax-free withdrawals or maturity payout under the Sections 10(10D) of the Income Tax Act, 1961 (subject to provision stated therein), and as per product terms and conditions. Finally, in addition to getting a corpus when the ULIP policy matures, if anything were to happen to you, your family still gets insurance cover ensuring continuity of their life goals.
Even though we all have long-term life goals that require intelligent investments, most of us do not have the time to proactively manage our portfolios. New age ULIPs are an effective way to manage your portfolio as they offer in-built asset diversification which is essential for any successful inflation-fighting and wealth creation strategy.