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With the Union Budget 2020, the Finance Minister of India also announced the establishment of the new tax regime. Basically, the new regime allows taxpayers to save tax directly without having to make any investments.
Furthermore, claiming tax deductions for investments under Section 80C of the Income Tax Act has been eliminated in the new tax regime. This has put the investors in a dilemma of whether or not to invest in plans.
It is noteworthy that the new tax regime is completely optional, and taxpayers can continue with the old tax regime to claim tax deductions for the investments made. Having said this, a lot of people have been making investments under ULIPs.
So, if you are considering investing in ULIPs, here are five things you must do before starting the investment.
#1. Define Your Financial Objectives
The ULIP full form is Unit Linked Insurance Plan, and it is a goal-based investment option. Different types of ULIPs are available in the market that helps you accomplish certain financial goals.
For instance, you can invest in ULIP child plans to save for your child’s future or invest in ULIP retirement plans to have a worry-free retirement life. Hence, before investing in ULIPs establish your financial goals.
#2. Know Your Risk Appetite
ULIPs allow you to invest in funds of your choice, depending on your risk appetite. If you are a high-risk taker, consider investing in equity-oriented funds. Whereas, low-risk takers can invest in debt funds.
Also, after a while, if you feel your investment strategy is not working well for you, you can switch between funds (from equity to debt and vice versa) easily in ULIPs.
#3. Reevaluate Your Allocations
As the years go by and you start nearing the policy maturity date, consider re-evaluating your fund allocations. You can shift from riskier asset allocations to conservative funds that will help protect your accumulated corpus.
#4. Investment Time Period
Apart from understanding your financial goals and risk appetite, it is also essential to know for how long you plan to stay invested in the strategy.
While certain ULIP investment types allow you to gain reasonable returns over a short period, long-term ULIP investments allow you to gain relatively high returns. Keeping this in mind, you can plan your investment time frame accordingly.
#5. Compare
There are multiple ULIP investments available in the market. To ensure that you are choosing the right policy, compare different plans from various providers before buying it. You can take into consideration factors such as –
- Premiums
- Features and benefits
- Additional charges
- Term of the policy
If certain ULIP investments have low premiums, assess the reason behind the same and look for the features it is offering at a low cost.
Also, it is wise to evaluate the fund management practice of the insurer and their consistency in the returns provided over the years.
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