Unit-Linked Insurance Plans (ULIPs) are one of the best investment instrument options available in the market today. It is because a ULIP policy helps you to secure the financial future of your loved ones and assists you in building a substantial corpus to meet your monetary aspirations in the long run.
Apart from ULIP, no other insurance policy offers the dual benefits of life coverage and investment under a single plan. ULIPs offer a wide range of advantages that you should know before purchasing one.
Here are the six plus points of investing in ULIP funds:
- Allows you to choose your funds
One of the best advantages of investing in ULIP is that it permits you to select the funds of your choice. Here, you can pick from equity, debt, or a combination of both funds based on your financial objectives and risk-bearing appetite. Do remember that higher risk provides greater returns. So, if you have a high risk-bearing capacity, you can invest in equity funds. If you do not want to take significant risks, you can opt for debt funds. It is advisable to invest in a combination of both funds if you are a moderate risk-taker.
- Enables you to switch from one fund to another
One of the other essential ULIP benefits is that it lets you move your investments between equity and debt funds. The performance of your ULIP investment is dependent on the capital market trend. If the market is bullish and at its peak, you can shift your money from debt to equity funds. Conversely, if the market is bearish, you can transfer your investments from equity to debt funds. With this, you can have better control over your investments and can make the most of them to maximize your returns.
- Serves as an ideal long-term investment option
Investing in ULIP funds is one of the best ways to save and grow your money to achieve your life goals, like buying a new house or car and funding your children’s higher education, among other milestones. If you stay invested in ULIP with a long-term perspective of approximately 15 years, you can reap the benefits of the power of compounding. Here, you can grow your wealth exponentially, as your accrued funds are re-invested to generate additional wealth in the long run. ULIPs come with a mandatory lock-in period of five years, and its long-term orientation will help your wealth compound and increase over time.
- Ensures transparency
This feature of ULIPs helps you in making a well-informed decision. It is because the insurer provides you with all the necessary details regarding the various charges associated and expected returns on investment, among other information before you buy the plan.
- Facilitates partial withdrawal
ULIPs allows you to withdraw funds partially in case of any financial emergencies. However, this facility comes with a condition. Here, partial withdrawal is allowed only after the compulsory lock-in duration of five years is over.
- Offers tax deductions
Tax exemptions are one of the most significant ULIP benefits. With ULIPs, you can increase your wealth and save tax. As per Section 80C of the Income Tax Act 1961, the premium paid for the ULIP is tax-exempt for up to INR 1.5 lakh per year. Besides this, the death benefit or amount received on maturity is tax-free under Section 10(10D) of the Act.
ULIPs offer a combined package of life insurance and investment. If the purpose of your investment is to grow your funds and secure your family’s economic well-being, ULIP is a highly suitable investment avenue.