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5 Reasons You Should Consider ULIP to Avoid Equity Market Risks

5 Reasons You Should Consider ULIP to Avoid Equity Market Risks

Unit Linked Insurance Plan

Every now and then equity markets turn too volatile for individual investors, pushing them to seek safety. You would also notice that equity markets tend to turn upside down when you are also facing trouble with business and employment.

Of course, equity markets are supposed to be the reflection of the true market situation on the ground. That is why some of your total investments must stay in safe instruments and some into those instruments which let you switch between equity and fixed income.

Unit Linked Insurance Plans are one of a kind investment which gives you the opportunity for both, and ULIPs do it with the maximum tax efficiency possible for any investment. But, that’s not all; the best ULIPs give you far more than just tax-efficient investment options.

Here are five reasons ULIPs are better as a safe investment:

1. Invest with Safe Strategies

One of the best features of ULIPs is that you can use proven investment strategies to allocate your funds. You can use different investment strategies for different purposes like growth, safety or simply to maintain a specific asset allocation.

Once you choose a strategy you can continue investing normally, and the fund managers will make sure your portfolio follows the selected strategy. One of the popular strategies with the investors in Invest 4G plan is Return Protector Option. Here’s how it works:

You can fix the return percentage for your high-risk portfolio, say at 10%. Every time your high-risk portfolio value increases by 10%, the growth will be transferred to a liquid fund. For example, assume your total investment in the equity folio is Rs. 1 lakh, and your folio grows to Rs. 1.1 lakhs. The extra Rs. 10,000 will be transferred from the equity funds to a liquid fund, securing your return on investment.

You can use other similar strategies to safely earn returns in ULIP regardless of market movements.

2. Option to Switch between Debt and Equity

You know that ULIP investments help you save tax under section 80C. However, what you may not know is that ULIP is the only way to invest in market-linked fixed income securities and save tax. If you are looking to generate a regular income, you can switch your entire corpus to liquid fund and withdraw systematically.

All other fixed income instruments which let you save tax, offer a fixed rate of return with little chance of earning any better. But, with unit-linked insurance plans, you can invest in top-rated corporate and government bonds, grow your money steadily and still enjoy section 80C.

Plus, nothing will stop you from investing a little in equity funds when the opportunity is good. This too, without causing any capital gains if you move your money from debt funds to equity funds.

Funds Switch in ULIPs

3. Boost Your Portfolio Value in the Long Run

ULIP plans like Invest 4G from Canara HSBC OBC Life Insurance have the option of unit additions for long-term serious investors. As a safe investor, if you stay disciplined with your ULIP investments, insurer adds bonus units to your portfolio.

ULIPs are the only investments which have this option. This is also why ULIPs like Invest 4G are one of the best investments for accumulating wealth and retirement corpus.

4. Invest & Withdraw Systematically

If you are salaried the easiest way for you to invest is in a monthly mode. However, if you invest every month in any other safe investment, you are likely to go through a maze of taxes. In ULIP, you can invest in any mode, even top-up at times when you have extra cash, and still enjoy tax savings and zero tax on maturity value.

Same applies to your partial withdrawals from the plan. Regular income or partial withdrawal from most other debt instruments is taxable. However, with a ULIP you can simply start a systematic monthly withdrawal without worrying about your tax liability.

5. Your Goal Is Safe No Matter What

So far as you are investing in your financial goal you are bound to achieve it. Your family has many financial goals which they must achieve even if you cannot be there to invest in it. ULIPs can help you ensure that your family can fulfil these goals even in the event of your untimely demise.

ULIPs have an inherent life cover associated with the investment. When you start investing in a ULIP, you choose a goal value for your investment. This goal value becomes the sum assured of the inbuilt life cover.

As your invested money grows in the ULIP, the life cover keeps reducing. Thus, in case you meet the ultimate fate before reaching the goal, the different is fulfilled by the life cover. So, your family can still meet their goals.

A Truly Versatile Investment

ULIPs are very flexible, convenient and goal-oriented life insurance investments, especially for safe investors. If you are one of those investors who usually like to avoid equity market risk, ULIP is one of those investments which can give you - the comfort of fixed-income investment, and tax-efficient returns.

Speak to an insurance specialist now!

FAQs

In order to understand ULIP NAV, you first need to understand how ULIPs work. In ULIPs, a portion of premium from different investors is accumulated to create one investment corpus. This money is invested in several different market instruments. So to divide the returns properly among all the investors, the fund manager divides the net asset value in to small units with a specific face value. NAV is the per market share value of a fund. To better understand the definition of NAV, take a look at the formula below -

Net Asset Value = [Assets-(Liabilities + Expenses)] / Outstanding Units

It's not risky to invest in ULIP if you chose a safer path. Risk factor in ULIPs depends on the investment option you choose. If you are not okay with sharp movements, then choosing a low risk investment is a better idea. For people with high risk appetite, it's good to choose equity funds while risk-averse investors can go for debt funds.

You can opt for settlement option if you want to take your fund value in periodic installments. With the settlement option, you can get your maturity amount in installment as per the frequency chosen by you over a maximum period of 5 years. You can choose complete withdrawal of fund value at any point of time. Although, you will not get any life cover during this period.

ULIPs are life insurance products that provide paths to invest. And just like other investment option, there's no guaranteed investment return in a ULIP. Although, if you like taking risks and want to earn more returns on your investment, then opt for equity funds.

At the time of maturity of ULIP policy, you will get the fund value on your prevailing NAV. Fund value is the number of units of policy multiplied by NAV (net asset value).

Value of the fund = Total units of policy x NAV (Net Asset Value)

Well, discontinuing your premium payment will disrupt your savings as well as financial goals. In such case, you can approach your insurance company and ask for the revival of discontinued policy within the stipulated timelines. Also, you will have to pay all the unpaid premiums.

ULIP plan is a combination of investment and insurance. Thus, one must hold this plan for a duration of at least 10 years so as to get investment benefits out of it. As an early exit will have its own consequences. ULIPs have a lock-in-period of 5 years. Thus, you may surrender your policy before the completion of 5 years, but you will be paid only after the end of 5 years.

Generally, minimum lock-in period for ULIP is 5 consecutive policy years. During this time period, if the policyholder discontinues or surrenders the policy, then he/she will not able to receive any payouts. Withdrawals are only allowed at the end of the lock-in period. In addition to this, if you surrender your policy before the lock-in period ends, then you will have to pay surrender charges as well. Also, it is advisable not to exit your plan after the completion of 5 years of lock-in period, because if you stay invested for a longer duration it will help you reap better benefits.

The amount that you pay towards the Unit Linked Insurance Policy is eligible for tax deduction as per Section 80C of the Income Tax Act, 1961. This means that the premium amount paid will be deducted under section 80C from your taxable income up to a maximum limit, which is currently ₹1.5 Lakhs. However, the aggregate amount of deductions under section 80C, section 80CCC and 80CCD (1) shall not, in any case, exceed ₹1.5 Lakhs. Also, upon the maturity of the policy, the payout amount you receive will be exempt from income tax, subject to the applicable provisions of Section 10(10D) of the Income Tax Act, 1961.

Here’re the following major benefits of buying ULIP

1. Tax Benefits – It helps you to reduce tax liabilities. This means you are liable to enjoy tax benefits on the premiums paid towards the policy as per Section 80C of the Income Tax Act.

2. Long-term growth– One of the major benefits of buying a ULIP plan is that it offers long-term benefits. ULIPs come with a lock-in period of 5 years which will keep you invested for a longer period.

3. Dual benefits – ULIPs not only offer life coverage but also come with a wide range of investment funds that will help you earn great returns. This includes balanced funds, debt funds or equity funds. You can invest in any of them depending on your need and risk appetite.

4. Flexibility – It gives you the flexibility to switch between funds basis your risk appetite. You could select multiple funds and different investment strategies.

5. Partial withdrawal option – It allows you to make partial withdrawal in case of any uncalled medical emergency or contingency after completion of lock-in period.

ULIP is a perfect investment option if you are looking for long term wealth creation. It could be buying your own house, a new car, going on a long vacation, or your child’s higher education or marriage, ULIP helps you to meet all your long-term financial goals. Moreover, it comes with a lock-in period of 5 years which keep you invested for a longer period and helps you earn better returns. The lock-in period is calculated from the date when the policy is issued.

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