Do ULIPs Give Higher Returns?
Updated On Sep 20, 2021
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ULIPs are one of the most recent financial instruments available to investors. Unit-Linked Insurance Plans (ULIPs) are insurance policies that provide insurance coverage while also producing returns through various investments. In a similar manner to mutual funds, the insurance company launches a new plan and encourages investors to participate. ULIPs invest in stocks, bonds, and debt instruments.
Reasons Why ULIPs Can Give Higher Returns
Let's take a look at five reasons why ULIPs can provide better returns:
1. Possibility Of A Higher Return When Investing With Peers
Due to their equity advantage, ULIPs have the potential to earn higher returns than any other insurance product. The premiums you pay go into several funds under ULIPs, which invest in a variety of asset kinds. Tax-saving funds have traditionally produced double-digit returns, but if you only invest once a year, you'll need to locate a new fund each year. Tax savings are taken care of by ULIP renewals.
ULIPs allow you to switch funds at any time during the term. You can choose from growth, equity, balanced, or income funds, depending on your risk appetite and changing goals. In general, each year four free switches are allowed.
Unlike stocks, you don't have to keep track of the companies that the fund invests in. Simply select the policy, change the fund allocation at any time during the term, and keep it running until maturity to reap long-term benefits.
3. Period Of Confinement
ULIPs have a five-year lock-in period, which might help you create a portfolio management habit. Because it is a long-term insurance policy, investing in a single ULIP can benefit. The insurance is acquired only once, unlike ELSS, but the tax benefit is provided each year until the premium-paying period ends. It's important to remember that, although the lock-in period is the shortest at three years, the money invested in the first year is only available in the fourth.
As a result, any investment, whether made monthly through systematic investment plans (SIPs) or in a lump sum amount once a year, can only be withdrawn after three years. The ULIP lock-in period begins on the date the policy is issued.
4. Dual Advantage
Term insurance plans give life insurance as well as tax advantages, but they do not pay out a profit. In addition to providing a tax credit of up to Rs 1.5 lakh under Section 80C of the Income-tax Act, 1961, ULIPs might be beneficial for long-term goals. It provides a minimum sum secured comparable to 10 times the annual premium for investors under the age of 45.
5. First-time Investors
With FD-oriented investors, mutual funds and insurance programs are slowly gaining appeal. Mutual fund folios reached a new high of 6.5 crores at the end of November, according to the latest data from the Securities and Exchange Board of India. A market-linked instrument, such as a ULIP, makes sense for new investors who are changing their investment habits.
Unit-linked insurance plans combine the advantages of stock diversification with the advantages of life insurance into a single plan. These plans include both market-linked rewards and life insurance. They are highly adaptive and dependable. Based on your preferences and risk tolerance, you can examine each fund's performance and modify the fund(s) you want to invest in.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.