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ULIPs or SIP: How to Choose Wisely

May 24, 2019
Investment plans are the schemes that offer variable options for growth of funds that are invested and allow us to build up a sufficient corpus over a period of time. Investment plans come with a lot of options with diverse features related to returns on investment, term-period of investment, additional benefits, coverage scopes etc. Generally, investment plans can be broadly classified into those that offer high returns on market-linked fund options and those that offer stable returns with fixed interests and security of invested funds. Depending on an investor's risk appetite, financial preferences and monetary targets for short-term and long-term goals, various investment plans provide benefits best suited to your needs.

ULIPs are Unit Linked Insurance Plans that serve as joint instruments for insurance coverage and investment through a variety of fund options. ULIPs come with a lock-in period of 5 years and therefore, enable financial discipline through regular investments which makes them ideal for long term financial goals. ULIPs also have the feature of permissible switches between various fund options that makes them very flexible and the subscriber gets to choose the fun option as per her/his risk appetite. Besides, investments in a ULIP come with tax benefits under Sections 80C and 10D of the Income Tax Act, 1961 and are also exempt from LTCG taxation.

ULIPs offer the feature of fund switches between multiple fund options. This means that the policy holder can switch between fund options depending on how a particular fund is performing at the market. The insurers provide this switch option free of any cost up to a maximum of 10 or even 12 switches. After this, a nominal fee for switching between funds is charged. Therefore, ULIPs are very flexible in terms of the customer's preferences and offer a credible flexibility that allows the policy holder to make informed decisions.

When the policy holder pays the due premium, it is divided into two parts one part is channelized towards the premium towards the insurance coverage while the other serves as investment towards the multiple fund options. This means that a part of the payable premium is meant for maintaining the insurance coverage i.e. the life coverage while the other is meant for driving the investment bit through the various fund instruments.

On the other hand, a SIP (Systematic Investment Plan) offers guaranteed protection against market-related risks as the very act of investing involves long-term hedge against any kind of risk. There is the facility of investing in small amounts and slowly building the funds. Moreover, the money to be invested gets automatically debited as per the chosen frequency. Over a period of time, sufficient corpus can be created through regular habit of savings.

HDFC Life offers HDFC Life Click 2 Wealth  a market linked plan that offers unit-linked benefits for the financial protection of your loved ones.

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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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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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We at HDFC Life are committed to offer innovative products and services that enable individuals live a ‘Life of Pride’. For over two decades we have been providing life insurance plans - protection, pension, savings, investment, annuity and health.