Invest in ULIPs for long term

Investments serve two key purposes to help you reach your life goals. One, to kick-start saving money for all your needs. Second, strategically design an approach to increase the value of these savings. And yet, there's a third you might have overlooked; security.

Unit-Linked Insurance Plans, commonly known as 'ULIPs' work in a way that they not only insure your life but they also enable you to achieve multiple life goals with just a little bit of planning. ULIPs offer the flexibility of making smart and timely moves, which helps in optimizing returns on your investments. You also have a wide pool of funds such as equity or debt funds to choose from; which helps in diversifying investments as per your life goals and life stages.

Every investment comes with its fair share of risk. But if you're young and willing to take on more risk, you're likely to get higher returns in the long run, as shown by historical data. You can assess your risk appetite by taking stock of your life stage, your personal, professional and financial goals, your earnings and spending capacity whilst keeping up your current lifestyle. You can then decide how you'd like to allocate your funds and spread out your risk.

More reasons why you should consider ULIPs for investments

Easily available online

New age ULIPs are now available online at zero allocation charge as there is no distribution cost involved. As with all investments, it's important to first do your research, compare options and choose one that's best suited to your life goals. Buying ULIPs online allows you to do just that; so shop around, use online calculators to understand your investment needs and then invest in your financial goals.

ULIPs' long-term orientation enables the power of compounding to work in your favour. ULIPs come with a lock-in period of five years which not only brings financial discipline amongst investors but also enables them to take advantage of the long-term markets movement. Staying invested for a longer period will enable you to benefit from the power of compounding. Plus this helps you in tiding over any short-term market volatility by using the concept of rupee cost averaging where you invest a fixed amount at regular intervals. This lets you buy more units when prices are low and less when they are high.

Further, if you stay invested for the complete policy tenure, your fund value at maturity is enhanced through the return of mortality charge feature available in some new-age ULIPs, where additional units (or the mortality charge deducted earlier) are added to your funds if you stay invested till the policy matures.

Balance between cost-effectiveness and return on investment

ULIPs help to strike the right balance between cost-effective investments that also offer returns over the long term. Thanks to the flexibility ULIPs offer, you have the option to switch between different types of funds when the market is bullish or bearish, optimising your returns either way. Meaning you can switch to equities when the market is bullish and switch again to debt when the market is bearish without any capital gains tax incidence. Plus some ULIPs offer innumerable free switches --without any additional charges or any exit load. Thus the lower expenses of new-age ULIPs, combined with several tax benefits help in higher 'net return' (net of expenses & taxes) in the hands of the investor.

Tax benefits

ULIPs offer tax benefits where you can get deductions of up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act, 1961. ULIPs on maturity are also tax-exempt under Section 10(10) D if your sum assured is 10 times the annualised premium or more. Additionally, ULIPs continue to be exempt from Long Term Capital Gain (LTCG) tax, which was introduced in the Union Budget 2018.

Importance of life insurance: With ULIPs, you get investment plus life coverage. Hence, your family's goals are protected throughout the policy term.

With a view of long-term growth, you should continue with your ULIP investments till maturity to enjoy maximum benefits. However, effective monitoring of ULIPs is essential, post-investment. Be it for retirement, your child's education or any other unique life goal, you will be able to cross your milestones as aspired. New age ULIPs with capped charges have made the market more competitive and the implementation of new ULIPs regulations in favour of the investor has driven this product category to age. While you create wealth for your life goals, ULIPs help you to stay committed to realizing them.

The writer is chief distribution officer – institutional, Bajaj Allianz Life Insurance