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Why a Unit-Linked Plan is Must for Stable Fund Generation?

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Why a Unit-Linked Plan is Must for Stable Fund Generation?
July 22, 2023
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In this policy, the investment risks in the investment portfolio is borne by the policyholder

If you're a last-minute tax planner, make sure that you link your tax-saving investments to your goals. Tax will scale back not solely the net portion of your pay, but it will also place a dent within the returns from your investments. This is why you would like to take a position in well-thought out investment choices that may boost your financial gain and assist you to accomplish your investment goals.

What is Unit Linked insurance plans (ULIP)?

ULIPs are a mix of protection and wealth creation. When an investor opts for a ULIP, the insurance company offers various funds that can be invested in. The money invested goes into the funds chosen by the investor, and a few charges (for fund management, insurance cover etc.) are deducted from the same.

Types of ULIP Funds

If your financial goal is fund generation, ULIPs might be the right option for you. There are different types of ULIP funds available in the market. Let’s take a look at what they are:

  • Equity Funds

    Equities have the potential to provide high returns but come with high risks as well. Since the money is invested directly in market instruments, it could end up being quite volatile and dynamic. Young investors who can make up for small losses should opt to invest in equity funds. Even if they face hardships initially, their losses can be offset against higher returns in the future.

  • Debt Funds

    Here, your money gets invested in corporate and government bonds, treasury bills or debentures. With regards to risk, debt funds are far safer than equities, but they also provide lower returns. Debt funds are ideal for investors with a low risk appetite. It’s also a good idea for older investors who do not have a lot of time to make high-risk investments.

  • Balanced or Hybrid Funds

    When it comes to investments, you should never put all your eggs in one basket. With hybrid funds, you can enjoy the best of both worlds. You can invest your money in a mix of debt and equity funds and minimise your risk. So, when the market is doing well, your equity funds will provide high returns. But when the market dips, your debt funds will continue to grow your wealth and help you meet your financial goals. As balanced funds offer stable returns, they are typically the most common investment option.

  • Liquid Funds

    With liquid funds, your money gets invested in liquid money market instruments like treasury bills or certificates of deposit. Here, you can quickly liquidate your assets in emergencies. The maturity periods for these funds range from a few weeks to months. These investments help you meet your short-term financial goals without exposing you to high-risk scenarios.

Why one should opt for ULIPS?

When there are so many options available for the investor, then the question is why ULIPs should be taken as an investment option. Apart from tax benefits, let’s have a look at the three benefits of ULIP which might help the investor in taking a right decision.

  1. Lock-in period: 

    Ideally, if the investor invests for a larger timeframe, the returns are high. ULIPs have a lock-in period of five years. A seed on investing and saving is sown. Profits on investing are a long term game and ULIPs can be pretty decent in creating a wealth for future.

  2. Tax-free returns at maturity: 

    The amount which the investor gets at maturity totally depends on how the market has performed. But one good thing is whatever amount the investor is getting at maturity is tax-free.

  3. Flexible: 

    The icing on the cake is that ULIPs allow the investor to switch the funds during the policy term. This helps in investing in the products which are giving better returns at a particular time.

The question is what product should be taken if we are ready to take some amount of market risk in exchange for returns? ULIPs can help out with the same. Diversity of fund options offered for investment also plays a good game for better and stable returns.

How to Choose the Best ULIP Plan

Understand which types of ULIP plans work best for you can seem hard. When it comes to investment, there is no formula or universal solution. Each person must decide on the best course of action based on their goals and finances. To choose the best ULIP plan in India, you must consider these vital things:

  • You’re Goals

    Ask yourself why you are making this investment. What is your financial goal? You can choose between short-term or long-term ULIPs based on your needs. For example, you may opt for liquid funds if you’re hoping to purchase a car in a few months. But if you’re saving for your retirement, you may think about long-term policies that offer high rewards with low risk.

  • You’re Risk Appetite

    ULIPs invest your money in market instruments, so they come with inherent risks. If you are concerned about taking big risks, you may want to stick with debt funds or hybrid funds with a lower proportion of equity funds. You must pick an investment option that works for your needs.

  • Maintenance Charges

    ULIPs were known for having very high maintenance and other charges. While these plans have become more affordable, there are still some policies that cost more than others. Before you pick a ULIP for fund generation, do your research. Check what kind of fees and charges different companies offer. Pick a plan that offers you high returns at minimal cost.

Conclusion

ULIPs allow you to plan for a safe and secure financial future. Once you understand the various types of fund generation options, you can select the ULIP that provides stable returns for the future.

1The afore stated views are based on the current Income-tax law. Also, the customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law. Tax Laws are subject to change.

Related article:

ARN - ED/12/21/27006

 

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Disclaimer

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. The name of the company, name of the brand and 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.

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