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Investing in ULIPs - A Detailed Guide for Young Professionals

Investing in ULIPs - A Detailed Guide for Young Professionals
November 21, 2022

In this policy, the investment risks in the investment portfolio is borne by the policyholder

The workforce is only growing in India, and the majority of it comprises millennial. The demand for insurance is also growing along with India’s workforce. With the advent of new technology and fresh thinking, comes innovation in investing. With a great demand for tailor-made investment plans, India’s insurers are creating schemes to meet the demands of this segment among other retail investors. As a substantial portion of the Indian population comprises the youth, with a high disposable income compared to previous generations, professionals are always looking for savvy ways to invest. Investing in ULIPs or unit linked insurance plans is emerging as a favorable way to allocate capital to insurance as well as investment. The flexible nature and high tax perks of such plans attract young salaried professionals from all employment sectors today.

ULIPs can be incorporated in a range of investment portfolios. They have the unique ability to help save your capital, and also build it in a systematic way. Probably, the appeal of a ULIP stands out because it ensures life coverage. The investment component just enhances this and if you haven’t invested in a plan yet, you’re about to find out why you should invest quickly.

What is a ULIP?

A ULIP or a unit linked insurance plan is quite a unique plan. A typical ULIP has two components - an investment instrument and life insurance coverage. For any regular insurance plans, you have to pay premiums that go towards the cover offered by your plan. You must pay premiums with ULIPs too. However, a part of your premium goes into investment in funds of debt or equity, and the other part gets allocated to insurance cover. For the investment in funds, you have a say in choosing funds, as a policyholder. Investing in ULIPs is a great way to diversify any financial portfolio. It also helps young investors to make prudent investment choices and think about goal-based investment.

Benefits of Buying a ULIP

After reading how ULIPs can help fulfill financial goals, you’ve probably guessed their benefits. However, here they are highlighted for you:

  • Investing in ULIPs offers up a good option to young people who wish to start saving and investing habits. What’s more, starting out young helps as investments get compounded and returns ultimately multiply over a long period.
  • ULIP funds, at maturity, can be used for a plethora of needs, such as funding children’s further education or using funds towards developing a retirement corpus.
  • Plans that you invest in through ULIPs are known for their flexibility. You can choose the amount of investment you make and select funds that appropriately match your risk appetite, financial goals and time horizon. Hence, if you have predetermined and specific goals in mind, a ULIP facilitates your planning in a very organized way.
  • Taxation Advantages - You get certain benefits related to taxation with a ULIP investment. Premiums that you pay for a ULIP fall within tax deduction rules, up to amounts of Rs. 1.5 lakh on an annual basis. Additionally, any maturity benefit you get when your ULIP plan reaches its end, is not taxed as per Section 10D of the Indian Income Tax Act, 1961#.

Why Should You Invest in a ULIP?

Investing in ULIPs gives investors a distinct edge over many other instruments, and rather than not investing at all. Here are key reasons to invest in ULIPs today:

  • Instead of capital that may be idly sitting in a bank savings account, earning very paltry interest, it is better to invest in a ULIP so money can grow.
  • ULIPs give investors two benefits in one. You get guaranteed life insurance coverage, plus great ways to invest your capital and see it grow over a period.
  • Some of the pros of ULIPs are the deductions you get in taxation on the premiums you pay. ULIPs are also tax exempted based on the recently launched LTCG (long-term capital gains) tax##.
  • The funds that ULIPs generate at maturity are not taxed at all and these can be used for a variety of purposes as and when you require them.

To Conclude

The retail investors that are in a good position to invest in ULIPs are youngsters in India. With time on their side, the ability of a ULIP to build a safety net for your financial future is great. While you grow your wealth by investing in ULIPs, you are worry-free as you know your family is protected financially, in the event of any unfortunate mishap.

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ARN – ED/10/22/30050

# Subject to conditions specified u/s 10(10D) of the Income tax Act, 1961.
##The customer is requested to seek tax advice from his/her Chartered Accountant or personal tax advisor with respect to his/her personal tax liabilities under the Income-tax law.        

The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.

Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. HDFC Life Insurance Company Limited is only the name of the Insurance Company, The name of the company, name of the contract does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.