Is ULIP a credible investment?

ULIPs have undergone a complete transformation in the last 10 years and strict regulations and the high degree of competition have made it an extremely cost-effective, investor-friendly investment. However, even with a complete makeover, investors still are sceptical about ULIPs especially if they have previously lost money through their ULIP investment.

ULIP today, in reality, is an excellent integrated plan which helps you cater to both your insurance and investment needs under a single roof. More importantly, ULIPs provide you with the opportunity for wealth creation by taking care of your investment needs and at the same time provides your life cover.

In order to drive home, the point let us look at some of the unique features of ULIP which make it a credible investment option.

ULIPs also have benefits that not only secure your future and help your family with meeting its financial needs but can also help you reap rich dividends over a period of time. Let’s take a look at a few of the major advantages offered by ULIP.

Life cover
ULIP is the only product which provides you with the dual benefit of life cover along with the opportunity of wealth creation. Thus, ULIP provides life cover up to sum assured or fund value, whichever, is higher and also helps you achieve your financial goals.

Tax Deductions and tax benefits
Investments made in ULIPs up to Rs. 1.5 lakh can be claimed as deductions under Section 80C of the Income Tax Act, 1961. Also, the amount received on maturity too is exempt from payment of tax under Section 10(10D).

Option of Switch

The returns generated in ULIPs are market-linked. ULIPs allow investors a number of free switches in a year to move their investments between equity and debt. Thus, depending upon your outlook of the market you can optimize your returns.

The best feature about ULIP is the tax-free switch between the funds. For every investment, there is a capital gain taxation impact on any switch from equity to debt or vice versa. However, this is not the case in ULIPs. This is the ONLY product that allows the investor to switch from one asset class to another without any tax impact on the same.

Auto-rebalancing

 In ULIPs you can choose the proportion your investment across different fund categories. Auto-rebalancing allows you to maintain the same proportion as initially chosen by you.

Partial Withdrawal facility
In case of any emergency where you need funds immediately, you can withdraw from your ULIPs. Most ULIPs usually allow you to partially withdrawal funds at no charge after completion of few policy years.

Superior returns
The returns in ULIPs are market-linked and the premium paid in ULIPs is invested in multiple assets classes through different funds, thus providing higher returns as compared to other insurance policies. Moreover, the tax advantage makes the final returns even more lucrative to invest in ULIPs.

Loyalty benefits

The longer the tenure of your investment, the higher is the return. In the case of ULIPs, if you stay invested for a longer tenure, apart from superior returns, the insurance companies offer you loyalty benefits which provide higher savings.

Can help you long-term goals

ULIPs can help you achieve long-term goals such as buying a house; children’s education etc. as your investments get compounded every year helps generate higher returns to fulfil future goals.

Add-on Riders
Over and above the superior returns generated by ULIPs, you can add riders to your basic policy and increase life cover and make the policy more beneficial. Some of the most common riders include accidental rider and disability rider.

New-age ULIPs are investor-centric
Under the new regulatory guidelines by the IRDAI, ULIPs today are more investor-centric and cost-effective than before as the premium allocation charge, administration charges are negligible now.  Also, strict competition in the market helps keep the insurance companies in check.

Lock-in period of 5 years

For any investment to give you good returns, you have to invest in it for a long term. ULIPs have a compulsory lock-in period of 5 years, which helps you to stay away from the temptation of withdrawing your funds early.  

CONCLUSION

A decade ago, ULIP as an investment was not as lucrative as it lacked flexibility and was expensive. However, as on today, ULIP is a low on cost and high on benefit product designed keeping in mind the long-term interest of the investor in mind.