What Is the Potential for ULIP Growth?

 

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

Unit-Linked Insurance Plans (ULIPs) are unique financial tools that allow individuals to invest for the future while enjoying life insurance coverage in the present. These insurance-cum-investment plans have become popular across India since they allow investors to diversify their portfolios and plan for long-term financial goals. Let's better understand the potential for growth in ULIPs and the factors that contribute to it.

Benefit from the Power of Compounding

ULIPs have the potential for growth through the power of compounding. The returns you earn on your investment get reinvested to generate further returns in compounding. ULIPs invest in equity, debt or a combination of both, and the returns get compounded over the long term. The compounding effect is more significant in the long run, making ULIPs an ideal investment option for those who can stay invested for an extended period.

Switch Flexibly Between Asset Classes

ULIPs allow investors to switch funds between asset classes and take advantage of market movements. Investors can choose asset allocation based on their risk appetite and investment goals. You can modify the asset allocation based on market conditions or changing personal circumstances, making it a flexible investment option.

Protection for Life

ULIPs offer insurance coverage, making it an attractive investment option for those seeking to secure their future. ULIPs provide a life cover, offering financial protection to the investor's family in case of an unfortunate event.

Tax Exemptions

ULIPs offer tax exemption benefits, making it a popular investment option. The premiums paid towards ULIPs are tax-deductible under Section 80C^# of the Income Tax Act.

Proceeds received on surrender/partial withdrawal/maturity of ULIP plan are exempt from tax subject to provisions mentioned in Section 10(10D)^# i.e if the premium payable for any of the years during the policy term does not exceeds 10% of the death sum assured.

In addition to the above, for policies issued after 1st Feb 2021 tax exemption on maturity proceeds will be available if premium paid in any of the years towards such matured polices does not exceed Rs.2,50,000. Out of the total matured policies in a financial year, exemption u/s 10(10D) will be available only towards those polices who’s aggregate premium in any years does not exceed Rs. 2,50,000/.
Income from rest of the policies exceeding the mentioned limit will be chargeable as capital gains.

Death proceeds are also exempt from tax for all ULIP plans.

Factors Contributing to ULIP Growth Potential

Several factors contribute to the ULIP growth potential. These include:

Market Conditions

ULIPs invest in equity, debt or a combination of both, and the returns generated depend on market conditions. The performance of the stock market or the debt market will impact the returns.

Investment Horizon

ULIPs are long-term investment options, and the returns generated are more significant in the long term. Staying invested for an extended period will help the investor benefit from the power of compounding.

Asset Allocation

The asset allocation the investor selects will determine the returns generated on the ULIP investment. Investors can choose between equity and debt funds or a balanced fund based on their risk appetite and investment goals.

Premiums Paid

The premiums paid towards ULIPs will determine the amount of insurance coverage and the returns generated on the investment. Investors should select a premium amount based on their ability to pay and financial goals.

Charges

ULIPs come with various charges like premium allocation, policy administration, fund management, and mortality charges. The charges deducted from the investment will impact the returns generated. The investor should compare the fees of different ULIP plans before choosing one.

Investment Discipline

Investment discipline is essential to achieve long-term financial goals. ULIPs come with a lock-in period of five years, which ensures that policyholders continue their investment for a specified period. The lock-in ensures the policyholder stays invested and focuses on achieving their financial goals.

ULIPs have been gaining popularity recently due to their potential for growth, flexibility, and tax benefits. They offer insurance and investment, making them an ideal option for individuals who want to fulfil long-term financial goals securely. ULIPs also provide a switching option between different asset classes, which helps diversify the portfolio and maximise returns based on market changes. You must choose a ULIP plan that aligns with your financial goals and risk appetite. It is also crucial to read the policy document carefully and understand the charges associated with the plan before investing.

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• Types and Benefits Ulip Plans - Here's What You Need to Know
• 6 Tips to Maximize your Gains from ULIP
• Benefits of Buying Online ULIP over Offline ULIP - Explained

ARN - MC/07/23/3102