When it comes to making decisions regarding wealth creation and securing family’s future against potential financial distress, most of us show a greater affinity to participate in instruments which give higher returns. But unfortunately, they do not provide any protection or safety against any financial losses in future.
However, if you invest through ULIPs, you get the dual benefit of protection and capital appreciation.
Naval Goel, Founder, PolicyX.com says that people consider ULIP as one of the most attractive options to make the investment because of the reliable wealth creation feature over a long-term period along with the tax savings option.
Among all investor-friendly features of ULIP, the best thing that attracts people is that it allows investors to invest their premium in a mixture of debt and equity funds in varying proportions, permitting inter-fund transfers along with the tax benefit.
“Apart from the returns provided by ULIPs, they also provide life insurance cover that pays a sum assured to the beneficiary in case of demise of policy-holder. A person can also invest in objective-specific ULIPs that includes Child ULIPs, Pension ULIPs, etc.,” he said.
Vinay Taluja, EVP and Head Cross Sell Landmark Insurance Brokers said ULIPs are a boon to retail/ middle-class investors in more ways than one.
Here are 7 facts about ULIPs you should know:
=> They give you an option to choose your fund based on the risk profile, similar to a mutual fund
=> The fund management charges in a ULIP cannot be higher than 1.35% per annum that is much cheaper than equity mutual funds. Rather, most ULIPs offer loyalty additions to help reduce your FMC further.
=> They provide a built-in life cover which can go up to 20-30 times of your premiums, helping you meet your risk cover requirements too. However, you may choose the life cover as per your requirement.
=> ULIPS offer you a packaged solution vs mutual fund SIPs especially for child plans since it combines equity investments for inflation-adjusted returns along with Life Cover and Waiver of Premium in case of death of a parent to ensure money which was planned on maturity on that date (without giving any return guarantee, of course).
=> With a built-in lock-in of five years, and a fixed policy and premium paying term, it creates some binding in your mind to not touch the corpus before the maturity and continue contributing premiums till the chosen policy term.
=> Moreover, the need for profit booking can be achieved through simply switching between various funds within the policy any number of times in a year. This is mostly free of cost and that too without attracting any tax.
=> ULIPs are better as they offer lifecycle-based portfolio strategy whereby the funds are automatically switched from equity to debt towards the end of the plan period.
One of the important aspects of goal-based planning is choosing the right asset allocation and maintaining the desired asset allocation during the whole accumulation period. If one is going for a higher equity exposure to beat inflation and maximise returns with lowest possible investment being made, he/she also needs to ensure that as they move near their goal maturity, they need to shift back to debt to securities their gains. This is easily possible in some of the ULIPs.