ULIP Myths Debunked
Updated On Dec 16, 2021
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ULIPs were initially marketed to the general public as a way to participate in the equity and debt fund markets without the dangers that come with them. However, due to exorbitant insurance company charges and widespread mis-selling by distributors, ULIPs quickly became a target for abuse. ULIPs became the least popular option for parking an investor's disposable income, despite their promise.
ULIP Myths Debunked
ULIPs are currently one of India's most cost-effective, versatile, and tax-efficient investing options. However, one of the following ULIP misconceptions may have prevented you from investing in them:
1. ULIPs Are Expensive
As previously stated, this is no longer accurate and can no longer be regarded as a disadvantage of this financial instrument due to the assurer's limitation of yearly rates. The cap was implemented in 2010, confirming the system's ability to supervise both sellers and purchasers.
2. ULIPs Are Not Transparent
The IRDA requirements on transparency are fairly specific. Every month, assurers must notify ULIP policyholders of any changes in the portfolio investment's Net Asset Value (NAV) as well as the yield reduction. The latter has been limited at 4% for five-year insurance and 3% for ten-year policies.
3. ULIPs Are Not Flexible
ULIPs are more flexible than other investments. Your asset portfolio can be moved from one fund to another, depending on your current condition and the market in which you've invested. Better fund management procedures incorporate low, medium, and high-risk alternatives while optimizing the ratio between stock, credit, and hybrid instruments under a single policy, resulting in more responsible investment returns.
4. ULIPs Are Highly Volatile
ULIPs are known for their flexibility, which is one of their main advantages. It gives investors the option of selecting funds based on their risk tolerance. Depending on your investing goal and risk tolerance, you can choose among equities, debt, or balanced funds. The notion that all ULIP investments are risky is incorrect because investors can always select a fund that they are most comfortable with.
5. Within 3-5 Years, ULIPs Produce Very High Returns
Investing in ULIPs with the purpose of generating large returns in a short period of time is not a good idea. While ULIP equities funds can provide good returns, they also carry the most risk. The results, especially if you choose an equity fund for your ULIP, are ultimately determined by market circumstances. In addition, ULIPs are long-term investments that should be held for at least 10 years to get the most benefits.
6. It's Expensive To Switch Funds
Investors in ULIPs can swap between the assurer's multiple fund options. Switching funds in ULIPs is not expensive, contrary to popular opinion. The majority of insurers provide five to ten free switchovers. The maximum number of fund swaps in some ULIPs is unlimited. The cost of the changeover is between Rs. 50 and Rs. 500, even if you've used the assurer's limited free changes.
7. Insurance Coverage Is Contingent On Market Conditions
Your ULIP premiums are split into two categories: investing and insurance. If you choose equity or a balanced fund, only the investment component moves with market circumstances. The insurance component is distinct from the market conditions and has no bearing on it. The life insurance coverage will not change if the market declines.
ULIPs are an excellent choice for reaching long-term financial goals while also providing financial security to dependents in the event of your death due to the mix of insurance and investing. Now that you know the truth about these prevalent beliefs, enroll in a ULIP with a reputable assurer to provide your money with greater stability.
Also read - Why You Should Not Exit ULIPs?
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.