Why buying Ulip is a good option

Any kind of final transaction done with the intent to earn returns and protect family is long-term in nature. Similarly, prolonged are the repercussions of any monetary instrument bought keeping in mind one’s financial goals in addition to the need to creating a family trust fund.

Historically being a nation that focuses on maximum savings and returns in addition to low costs, Indians compare the costs of various financial instruments before picking the necessary instrument in sync with their interests.

So if you want to invest and secure your future with Ulips (unit-linked insurance plan), here are some of the parameters you must consider before drawing rich benefits from your long-term investments. An Ulip is a product offered by insurance companies that, unlike a pure insurance policy, gives investors both insurance and investment under a single integrated plan.

Fixed deposit vs Ulips: Predominantly a FD-oriented nation, India is increasingly witnessing a new set of investors that is gradually experimenting with its investing strategy simply because it has increased its risk appetite for a higher return. A fixed deposit where you invest a lump sum amount of money for a few weeks or a few years on a pre-determined rate of interest is losing its sheen among the youth due to falling fixed deposit rates. Moreover, there are better and lucrative options available in the market for the benefit of customers.

Also, Ulip plans lets you invest a small amount of money every month that allows the investor to seamlessly run his/her other expenditure or investment plans without putting too much pressure to first collect a lump sum amount and then invest it like in a fixed deposit.

Extended lock-in period means better returns: Though new-age Ulips are inexpensive instruments that promise good returns, some people feel apprehensive about the five-year lock-in period and refrain to buy them. The maxim of every investment that capital appreciation is possible only if money is kept invested for long periods is unknown to most people. Rec­urring advertisements showing mutual funds allowing customers the benefits of withdrawing money after short intervals has instilled the idea of investing for short-term in most investors.

Any kind of investment tool helps earn good returns only if allowed to continue for prolonged periods, i.e., 10-15 years. Raisi­ng the lock-in period in any Ulip ensures that the customers are forced into a regular savings habit.

Savings on tax payment: The EEE (exemption-exemption-exemption) tax benefit that Ulips provide to customers allows them to save money at all the three stages, viz. investments, earnings and withdrawals. It means Ulips are the best tax saving instruments due to their effective tax saving mechanisms. This is contrary to the recently imposed long-term capital gains (LTCG) tax on earnings from equity-based mutual funds that customers will have to pay from April 1, 2018. Details provided in the table explain how savings on tax can help Ulip customers earn more returns in the long run.

Free switching fund options: Not all customers holding Ulips are ignorant of how the stock market works. Though it may not be easy to predict the ups and downs of the market owing to various governing factors involved, some customers with adequate knowledge of the nuances of the market like to switch between funds to earn greater returns or protect what they have earned from their investments. The benefits of free switching fund options allow the investors to choose between the various investment funds and choose among them sans any unwarranted interruption.

What Ulip customers must know: The other parameters that can help customers value new-generation Ulips above all are their low costs. Their competitive charges dispel the myth that Ulips charge more to assure an added insurance cover. The in-built insurance cover comes at no extra cost. This is especially true of plans like Bajaj Goal Assure plan that return the mortality costs originally charged over time and Edelweiss Tokio’s Wealth Plus adds additional allocation to your fund on every premium paid by you, thus, resulting in zero charges for added insurance. Other Ulips including Max Life-Online Savings and HDFC Life-Click2Invest charge fund management cost (FMCs) so low that the overall cost of the insurance plan is much lower than the other investment avenues available in the market.

The fourth generation Ulips have emerged as a better option among the new age investment products. Once being a bad product, Ulips have gone through several regulatory and product level changes between the first generation and fourth generation (also called as new-age Ulips). The new-age Ulips outscore other investment options due to extremely low cost. But prior to making the investment, customers can check the past performance of the fund and choose to invest accordingly. Cust­om­ers can also decide to switch at any stage between midcaps, largecaps or bond funds as per their risk appetite free of cost.

An informed decision in any kind of investment is a key to make decent gains from an investment. Overall Ulips are an ideal investment option for long-term investment or financial goals such as child education retirement corpus or buying a house. Though this goes without saying that you check the performance of individual funds while investing in Ulips.

(The author is business unit head (life insurance) at Policybazaar.com)


Article  originally published by Financial Chronical on June 18, 2018

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