Is It Worthwhile To Invest In ULIP?
Updated On Oct 06, 2021
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Do you frequently find yourself frantically searching the internet for ways to invest money to save money on taxes this year? If you answered yes, you’ll likely make rash decisions, and in a few years, you'll realize that the majority of your investments were ineffective.
Frequently, tax-saving investments have a long lock-in period during which you are unable to remove any funds. As a result, if you wish to invest in tax savings, a little strategy is required.
You are, however, frequently faced with tight deadlines for presenting your investment proof and seek a quick investment option that will not disappoint you. A unit-linked insurance plan, or ULIP, is an instance of an investment where you can invest first and then pursue your goals afterward, albeit you should prefer to plan first and then invest later.
Is It Worthwhile To Invest In ULIP?
Here's what makes ULIPs special and unforgivable when it comes to making swift tax-saving decisions:
1. Long-Term Investment
For more than a year, ULIPs meet your tax-saving needs. So, even if you have to make a snap decision this year, you can simply carry on with the same strategy next year.
Must Read: Advantages and Limitations Of ULIPs
2. Highly Customizable
Even once you've started investing in the plan, ULIPs are highly customizable. Within the ULIP, you can modify the portfolio strategy, allocation, and even transfer funds to another fund option.
You always have control over your portfolio, even though ULIPs have several asset allocation schemes to choose from. You can change the fund allocation to reduce risk once you've decided to dedicate the ULIP investment to one of your financial goals. Long-term goals should be the only focus of your ULIP investments, as ULIPs tend to outperform short-term investments.
3. Coverage That Improves Your Life
ULIPs are always coupled with a life cover because they are life insurance plans. As a result, investing in a ULIP improves the financial stability of your family.
ULIPs can give security for your financial goal in addition to increased life insurance. For example, if you use a ULIP to save for your child's further education, you may make sure that the money gets to him or her even if you are no longer around. Your family receives the life insurance payout, but the insurer continues to invest as you would. At the time of the policy's anticipated maturity, your kid will receive the accrued fund value.
4. Returns Without Paying Taxes
While the tax benefits of ULIPs are limited to the 80C restrictions, you can invest any amount in them. Even if you invest in ULIPs more than the 80C restrictions each year, the maturity value you receive may be tax-free.
All you have to do is invest only up to 10% of the policy sum insured in any policy year to avoid paying taxes on your maturity proceeds.
5. Adjust Investment Amount Later
You can increase or decrease your ULIP investment amount at any time thanks to the 10% taxation rule. When purchasing without a long-term goal, you should retain the option of investing a larger amount in a ULIP open.
You will almost certainly see an increase in your income, particularly if you begin investing early. Maintaining a large sum insured will spare you the trouble of having to purchase a new ULIP as your salary rises.
For example, if you are 30 years old and can invest Rs. 1 lakh each year in ULIPs, you can choose an Rs. 15 lakh sum insured. As a result, if you desire to increase your annual commitment in the future, your ULIP investment will not be taxed.
Every tax-saving investment can be put to use for a specific purpose, which is how you can repurpose them. We'll concentrate on unit-linked insurance plans, or ULIPs, for this essay.
Due to the long-term nature of ULIPs, you may become bored and make an unreasonable conclusion. This is because when you purchased the ULIP, you may not have had a specific aim in mind other than tax savings.
However, this does not preclude you from planning forward and utilizing the current ULIP.
Also Read: How To Compare & Buy ULIPs In India?
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.