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Financial planning is essential to secure the family’s monetary future, especially if you are a sole breadwinner. It is advisable to invest in financial instruments that can help you to meet your life goals in the long run.
With many investment products available in the market, searching for an ideal instrument can be daunting.
Out of the numerous options, Unit-Linked Insurance Plan (ULIP) is a well-known wealth creation tool if you consider investing from a long-term perspective. If you wish to have a clear idea of the ULIP plan meaning, let us explain it to you in a more straightforward way.
ULIP is an investment instrument offered by insurance companies. ULIPs are not like conventional life insurance policies. They provide the dual advantages of life insurance and help in growing your wealth under a single plan.
ULIPs offer various other benefits that can help you maximize the returns on your investment. However, you should invest wisely in them and regularly monitor the performance to capitalize on the opportunities.
Here are some aspects that can help you earn high ULIP returns.
#1. Fund Switching
ULIPs provide the convenience to shift your investments from one fund to another anytime during the tenure of the policy.
The performance of your investment is dependent on the nature of the market. If the equity market is bearish, you can move your investments from equity to debt funds to safeguard your accumulated sum.
Similarly, you can switch from debt to equity funds when the market is bullish, and if you find that it is the right opportunity to make the most out of the market conditions. By doing this, you can maximize your ULIP returns.
#2. Long-Term Perspective
You can earn lucrative returns from your ULIP only if you stay invested for the long term. ULIPs come with a mandatory lock-in duration of five years, and many people tend to surrender or discontinue their policy soon after the completion of the compulsory tenure.
During the early years, the underwriting costs of the policy are enormous. Charges like premium allocation charges, policy administration charges, mortality charges, and fund management charges will significantly decrease the fund value.
However, if you want to surrender your ULIP immediately after the lock-in tenure, you will have to shell out surrender charges as well. Therefore, you may not be able to earn attractive ULIP returns.
If you remain invested in ULIP for a long duration, you can reap the benefits of compounding as well. In compounding, the amount earned from your investments is re-invested to grow your funds substantially.
#3. Tax Deductions
You can avail of ULIP tax benefits under Section 80C of the Income Tax Act, 1961. This section allows you to claim a maximum deduction of INR 1.5 lakh per year on the premium that you pay for the policy.
Besides this, the amount that you receive on maturity, and the sum that your nominees get in case of an untoward event, comes with ULIP tax benefits as per Section 10(10D) of the Act.
#4. Loyalty Additions
You can maximize the returns on your investment in ULIP with the benefits of wealth boosters and loyalty additions. If you stay invested in the long-term, your insurer will provide you with loyalty benefits.
Moreover, the insurer will offer additional units or percent as wealth boosters that can increase your fund’s value.
Wrap Up
Now that you have knowledge of how you can earn high ULIP returns, it is time to maximize your investment value and achieve your financial aspirations.
It is recommended that you remain invested for at least 10-15 years and analyze the performance of your investments at regular intervals, so that you know when to make the correct switches, if required.
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