Investment is a two-edged sword. While it is an effective way to achieve financial goals. If not done right, it can hurt you immensely. Many people believe the key to success in investment is to keep investing. While there is some truth to it, there are many other factors to be considered. One such factor is what if you don’t find success investment. Investment is highly dependent on market conditions that can be both good and bad at different times. Hence, it is important to find options that have a higher chance of getting good returns and have growth. One of the best options available for this is a ULIP plan.
ULIPs are a great mixture of financial security and wealth creation. When you choose to buy a ULIP, the insurance provider will offer various funds that you can put your money into. These funds then grow depending on the market conditions. Hence, it is important that you carefully select the fund that you will be investing in.
Why should one buy ULIPs?
When you set out to invest your money, you will find no shortage of options, each one with its own advantages. Hence, the question begs to be asked. Why should you select ULIPs as the option to invest in? Here are few reasons:
- Lock-in period
ULIP lock-in period can be best described as the minimum period of time that you would have to hold an investment. This means that your investment has ample time to grow. While this also means you cannot withdraw your investment until the lock-in period is over, it may be better for you. Funds often take some time in seeing significant growth. If you are a novice investor, you may see it as a non-performing fund and withdraw all your money. However, that can turn into a missed opportunity. Hence, it is better that ULIPs use the lock-in period to let the fund settle. Being a long-term product, A ULIP plan is something you should stay invested in for a long time. A lock-in period makes sure you give your funds enough time.
- Tax-free maturity returns
The word maturity itself implies that a process has been completed. In the case of ULIP plans, this means that the plan has reached its maximum term. Once that happens, this means that the plan has reached maturity and needs to be liquidated. Upon liquidation, you would receive a maturity payout. Depending on how your fund has performed over time, this amount can be huge. This raises the question that whether this payout will be taxed under the Income Tax Act or not. Fortunately, no. As long as all your premiums are paid, the ULIP tax benefit you would receive is exempt from income tax.
ULIP plans are known for offering policyholders a great deal of flexibility. Let’s assume you have a ULIP plan with a tenure of 5 years. During this time, regular insurance products would not allow you to make any major changes to the coverage you have. However, insurance providers that offer ULIP plans give you the provision of changing the sum assured in your plan after buying the plan. You can go for a higher or a lower amount depending on the situation you make the change for. A ULIP plan works through units. When you pay your premium, you purchase a fixed set of units. You have the freedom of dividing these units into different parts of the policy as you like. You can put more units into coverage or investment. Moreover, you can divert units from one fund to another to get better returns.