ULIP the Ultimate All Rounder
ULIP stands for Unit Linked Insurance Plan provides you with the option to invest in stocks, bonds or mutual funds.
Imagine you want an ice cream. You think you are going to get a single scoop of chocolate. But you find the ice cream vendor is actually giving you a triple treat of vanilla, strawberry and chocolate for the same price…the feeling you get will sort of describe the benefits of a ULIP over any other kind of investment option.
Without further ado, let’s jump into what is a ULIP and why is it such a fabulous investment. ULIP stands for Unit Linked Insurance Plan, which means it is an insurance plan which also provides you with the option to invest in stocks, bonds or mutual funds. So that takes care of two of your immediate needs. One life insurance to protect your loved ones in case of any eventuality. Second, building up your wealth by investing in financial instruments. The third benefit is actually a double benefit. It saves you tax while investing and you don’t have to pay tax on the earnings. So that’s the unique triple benefit of a ULIP.
Now that I’ve got you interested, let’s go into the nitty gritty of this investment option. The main reasons why you should rank a ULIP as the number one in your investment basket:
- Protection: Every individual with financial dependents need protection in case of any eventuality. Life insurance is the best way you can guarantee a minimum sum of money to your dependents should something happen to you. Life insurance is at the heart of every good ULIP.
- Wealth Creation: Where a ULIP scores over a traditional term plan is in its ability to generate wealth over the long term by allowing you to invest in mutual funds.
Tax benefits: Investments in a ULIP can be claimed under Section 80C of the Income Tax Act, up to a maximum investment of Rs 1.50 lakhs a year. The returns on your ULIP investments are tax-free as well, so double tax benefits.
- Risk adjustment: You can choose the level of risk you are comfortable with by option for either a growth or balanced option. The growth fund will invest in stock-related mutual funds where there is a greater upside but also a risk of market falling. A balanced fund will mitigate the risk by investing in more prudent interest bearing instruments. The best part is you get to choose the option based on your risk taking ability.
- Small Investment: Many good ULIP funds allow you to invest monthly. Especially if you begin when you are young, you can invest as little as Rs 1,000 per month or Rs 10,000 per annum. A small sum over a long period of time, will not only ensure adequate insurance cover for your family, it will give you good returns over a long period of time.
- Hassle-Free investment: There are a number of great funds which you can purchase online. It takes less than five minutes for you to answer a few basic questions and at the click of a button you are insured. It is easy, it is fast and it is hassle-free to buy a ULIP. The best part is some funds have Automatic Asset Allocation. What this means is the fund constantly monitors the performance of the financial instruments it has invested your money in and switches the amount to ensure you get the best possible returns on your investment.
So it’s the beginning of the financial year, take some time to get your investments in order now. You will thank yourself later.
This is a partnered post.