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Why ULIPs Are A Secure Long-Term Investment

What makes ULIP a secure long-term investment

Why ULIPs Are A Secure Long-Term Investment


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March 17, 2021

By : Bajaj Allianz Life

Over the course of your life, you will no doubt envision several goals. Some of these will be for the short term, while others may be for the long term. Some such long-term goals could include purchasing your dream home, saving up for your children’s higher education, and even creating a retirement fund for your golden years.

To achieve these goals, it is important to include the right kind of investments in your portfolio. Long-term investments are what you want to look at here. In this context, ULIPs are among one of the preferred choices for securing your long-term goals. A ULIP investment can be advantageous in many ways. To understand this better, let us start by discussing the ULIP meaning and checking out how they work.

 

How do ULIPs work?

 

To understand how ULIPs work, it is important to understand the ULIP meaning first. A Unit Linked Insurance Plan (ULIP) is an insurance plan option that offers you the dual benefit of investments and insurance. You can enjoy these benefits by investing in either equity funds or debt funds (or both), while simultaneously enjoying the life insurance coverage that a ULIP investment offers.

If you have a high-risk appetite, you can allocate more of your investment to equity funds. Conversely, if you are a more conservative investor, you will find that debt funds align better with your investor profile. For investors who are neither to conservative nor too aggressive, ULIPs allow the option to invest in both equity funds and debt funds to balance out the risk exposure.

In case the policyholder passes away during the tenure of the plan, the insurer pays out the death benefits under the policy to the nominees. On the other hand, if the policyholder survives the policy term, the ULIP maturity benefits are paid out to them. These benefits can be extremely helpful for fulfilling long-term life goals.

 

Features of ULIP that make it a secure long-term investment

 

There are many ULIP benefits that make it a secure long-term investment for anyone looking to secure their long-term life goals. If that sounds like you, here is a closer look at the features of a ULIP that make it one of the long-term investment option.

1. They give you market-linked returns that can generate long-term wealth

One of the key ULIP benefits is that it offers you the flexibility to invest in equity funds, debt funds, or both, based on your risk appetite. This gives you the opportunity to benefit from market-linked returns, particularly in the equity segment, and thereby may help you generate a larger corpus. When you remain invested in ULIP plans for the long haul, you may be able to average out losses due to volatile, short-term market movements.

With your ULIP investment, you can also take advantage of rupee cost averaging, wherein you can buy more units when the prices are lower and fewer units when the prices are high. This lowers the overall cost of investment, thereby increasing your overall returns.

2. They help inculcate the habit of disciplined savings

ULIPs also help secure your long-term goals by inculcating the habit of disciplined savings. ULIPs comes with a 5-year lock-in period. This allows you to remain consistent and committed to your investment. You can even choose the frequency of paying premiums depending on the terms of the policy. The common options include monthly, quarterly, half-yearly or annual payments. This way, you get to invest a given amount of money regularly, instead of otherwise spending it. The result is that you generate a corpus to fulfil your long-term investment goals.

3. They leverage the power of compounding

The power of compounding essentially involves exponential returns, which are made possible because the money you invest is compounded. In other words, you earn returns on your returns, since any gains you may have made are reinvested. ULIPs use the power of compounding to help you create long-term wealth. The true benefits of compounding are best seen when you remain invested for the long term.

4. They allow you align your investments with your life goals

ULIP benefits also include the fund-switching feature. By using this option, you can transfer your units from one ULIP fund to another in the same plan. This way, you can rebalance your investment across equity funds and debt funds, depending on how the markets are moving and on how your life goals evolve.

For instance, if a certain life goal is over 10 years away, you can choose to invest a greater proportion of your money in equity funds. As the goal gets closer, you could steadily switch your investments to debt funds to reduce your risks and secure the returns already earned.

 

Is ULIP a good investment?

 

As you can see, ULIP benefits are many and varied, undoubtedly making them a preferred investment choice. This is particularly true if you want to secure your long-term goals. There are other reasons why ULIPs make for beneficial investments –

1. Dual advantage of insurance and investment

2. Tax benefits under different sections of the Income Tax Act, 1961

3. Choice of funds that help diversify your investments

 

Conclusion

 

Therefore, if you have any long-term goals that you are keen on achieving within the time horizon you have in place, ULIP benefits can be advantageous to you. In case you have not already, you may look to purchase a ULIP now to secure your future and the future of your loved ones.

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~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.