Why It Is Necessary to Invest in ULIP for the Long Term. The primary motive behind investing your hard-earned money in financial instruments is to gain significant returns. Besides this, investments inculcate a habit of savings among investors, which ensures financial security in challenging times.
Today, there are numerous products available in the market that can help you grow your wealth. However, it is advisable to invest in Unit-linked Insurance Plans (ULIPs). They offer high returns when compared to most of the other investment alternatives. If you are inquisitive to know the ULIP plan meaning, let us explain it to you in a straightforward way.
ULIP is a kind of wealth generation tool that insures your life and helps you in growing your money. In short, ULIP offers dual benefits of insurance and investment in a single plan. You have the option to select the preferred type of fund for investment. You can choose from an equity fund, a debt fund, or a combination of these two funds. ULIPs have a mandatory lock-in period of five years and offer the flexibility of switching from one fund to another.
ULIP offers significant returns when you stay invested with a long-term perspective of 10-15 years. The long-term orientation of the ULIP investment plan allows you to reap more monetary benefits through the power of compounding. Your fund value grows with time, and you can build a substantial corpus to meet your future financial aspirations. In compounding, the income earned from your investments is re-invested to achieve better returns over time. Besides this, if you remain invested until the policy matures, the insurer can return the mortality charges in ULIP in the form of extra units added to your funds. The insurance company levies mortality charges in ULIP to cover the cost of providing life insurance protection.
Another important reason to invest in ULIP for the long-term is to avail of the tax deductions. Here, you are eligible to claim a maximum deduction of INR 1.5 lakh per annum on the premium paid for the ULIP as per Section 80C of the Income Tax Act, 1961. The amount received on maturity is also tax-exempt under Section 10 (10D) of the Act.
ULIP provides you with the flexibility of switching from equity to debt fund or vice-versa. This allows you to have better control over your investments. So, you can maximize the returns as per the current market situation. Besides this, you can diversify your investment. For instance, you can shift from equity funds to debt funds when the market is bearish to protect your investment. This is because debt funds are less riskier than equity funds. Similarly, when the market is bullish, you can transfer your investment from debt funds to equity funds to earn higher returns.
The insurance component of ULIP ensures that your family is financially secured in case something untoward happens with you. The beneficiary of the policy will receive the sum assured or the fund value earned via investment in equity or debt funds, whichever is higher.
Investment in ULIPs will help you achieve your long-term financial goals like buying a new house or car, financing your children’s education and their wedding, or planning your retirement. Now when you know about the ULIP plan meaning, do not waste your precious time and start investing in it as soon as possible.
Compare various plans online and search for a suitable ULIP. Be committed to investing in it until the policy’s maturity so that you can accomplish your long-term life objectives based on your risk-bearing capability.