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Benefits of including ULIPs in your financial portfolio

Besides twin benefits of investment and life cover, an investor also gets tax-free maturity amount and is also eligible for a tax deduction

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Investment options galore for those looking to create wealth within a reasonable period. A major percentage of the salaried Indians prefer to stock their money in bank accounts, fixed and recurring deposits. Some have gradually moved on to investing in stock markets, mutual funds, etc. to earn returns that beat the market inflation. However, for those seeking twin benefits of investment and life cover, Unit-linked Insurance Plans (ULIPs) are preferred owing to their unique benefits. This is because, in addition to earning market-linked returns, ULIPs also ensure the desired life insurance protection to the dependent family members in the event of unforeseen death of the policyholder.

Investment in ULIPs helps

Including ULIPs in your financial investment portfolio has its benefits. Some of them include:

Earning good returns

Many people prefer ULIPs to achieve their long-term financial goals. While the money gets invested in both equity and debt depending on the investors' risk appetite, ULIP investors get to benefit from the power of compounding. Suresh Sadagopan, founder, Ladder7 Financial Advisories, says, "ULIPs are long-term investments and investors can benefit from the power of compounding. The one thing that investors who want to benefit from long-term compounding should do is to not withdraw from time to time and keep the money invested for long. They may also top it up as and when they have surpluses, if they want to build a good corpus."

Dual tax benefits

It is common to look for tax benefits while making investments. Paying for a ULIP product ensures the investors' dual tax benefits on both the investment and maturity amount. CS Sudheer, founder & CEO, IndianMoney.com, says, "The premiums paid towards ULIPs are eligible for a tax deduction of up to Rs 1.5 lakh a year under Section 80C. ULIPs offer tax-free maturity amounts under Section 10(10D) of the Income Tax Act if certain conditions are met. On the death of the life assured, the death benefit is tax-free. ULIPs are exempt from long-term capital gains tax."

Flexibility to switch

Not all investors have the same attitude towards investments, which means that some of them may be more inclined towards taking more or less risk than others. This explains the benefit of switching flexibility that allows investors to switch between equity and debt at no extra charge. Raj Khosla, founder and managing director, MyMoneyMantra.com, says, "The flexibility to switch between equity and debt at no additional cost offers freedom to re-align portfolio basis risk-appetite, thereby, assuring maximum returns in the long run. ULIP investors, therefore, have a lower risk threshold and ease of switching between funds along with fund security and capital protection. However, use the switching option carefully, i.e., clearly understand the changes in risk and return across different funds."

Many life insurance companies have now come up with ULIPs that are novel and different in their approach from others. Many investors do not realise the need to have an insurance plan in place in addition to the financial investments they make. Choosing a ULIP proves beneficial to those as it helps to counter the sudden financial crunch on the sudden demise of the policyholder while also ensuring handsome financial gains to those who continue to invest in it for a prolonged period. Sadagopan says, "ULIPs are low-cost today. Plus, after five years, if one were to cash out, it is tax-free. This facility helps someone to keep their contingency and liquidity funds in ULIPs, which they could withdraw anytime they want after five years. ULIPs can also be one of the investments in one's bouquet while planning for goals as it offers a lot of flexibility and asset reallocation."

Transparent and tax-efficient investment in ULIPs is equivalent to making forced savings. Besides, the investors can change their stance according to market movements, which means earning from equities when the market is high while protecting your earnings from bearish trends by switching to the debt component of ULIPs. A continued and disciplined approach towards making a payment towards ULIPs ensures maximum returns in sync with one's life goals.

PRUDENT PLANNING

  • While the money gets invested in both equity and debt depending on the investors’ risk appetite, ULIP investors get to benefit from the power of compounding
     
  • Choosing a ULIP proves beneficial as it helps to counter the sudden financial crunch on the sudden demise of the policyholder
     
  • A disciplined approach towards making a payment towards ULIPs ensures maximum returns in sync with one’s life goals
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