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What is the potential for growth in ULIPs?

What is the potential for growth in ULIPs?

Growth in ulip

When it comes to investing your money, the financial tool you choose to direct your savings to is crucial. The lure of higher returns in equity markets also comes with an equally higher risk and is more suited for those with suitable experience. While more traditional investment options might provide safety of capital, but leave much to be desired when it comes to returns.

What if you are on the search for higher returns to help you beat inflation with the safety of income protection? In such a scenario, a ULIP not only lets you grow your money as per the amount of risk that you are comfortable to take, it also provides life insurance benefit till maturity.

This dual benefit investing tool also comes with transparency of various policy charges, flexibility, low-cost structure and tax benefits. So whether you are looking to create wealth for your short-term or long term goals, you can rely on some of the best ULIP in the market to help you achieve your target. Here’s how:

Benefit from the power of compounding

Each ULIP has a compulsory 5 year duration for which you need to stay invested for a minimum. This not only inculcates the discipline of saving regularly but also ensures that you as an investor are in for the long haul and not just for short term gains. This approach also helps you to benefit from the power of compounding. The returns earned on the principal amount are reinvested to generate additional income every year. If you stay invested for 10 to 15 years, you can expect significant wealth generation. Some of the best ULIP have delivered 12 to 15% returns on an average over the last 5 years given their cost-effective structure.

Switch flexibly between asset classes

Your capacity to take risks can change over time and so can your expectations of generating returns from your investment. Traditional financial options follow a fixed approach and do not allow for flexibility. However, a ULIP allows you to choose between equity, debt and balanced funds as well as switch comfortably between these without paying any additional charges.

Premium redirection allows you to take advantage of market movements to direct your future premium amount in the funds of your choice. As the policy nears completion, you can move from riskier funds to more conservative ones to prevent erosion of capital and preserve your wealth in order to meet your needs in the future.

Get protected for life

Apart from providing life insurance for the policyholder, a unit linked investment plan might also allow you to include your spouse and children as you move through different life stages, providing additional protection to your family. Death benefit is paid out to the nominee should the policyholder be no more when the policy is in force.

Those planning a comfortable retirement, can opt for the whole –life option. It is a good choice as you get a financial safety cushion even as your corpus grows with time. You can also rebalance your portfolio as your age advances by moving to low-risk funds

Tax exemption

All the best ULIP fall in the EEE category when it comes to taxation. The premium paid is eligible for deduction for a maximum of Rs 1.5 lakh as per Section 80C subject to certain conditions. The amount on maturity also does not attract tax according to Section 10(10D) of the Income Tax. Not only this, LTCG or capital gains over the long term, which apply on most market-linked instruments are not applicable to ULIPs. All these factors help to reduce your tax outgo considerably so that you save more and can redirect your savings further to grow money.

ULIPs are a lucrative investment option considering all the points mentioned above, that also come with the advantage of life insurance. For instance, the Invest 4G Plan from Canara HSBC Oriental Bank of Commerce Life Insurance allows you to choose from 7 different fund options as per your risk appetite.

You can also opt for either of the four portfolio strategies to get higher returns on your investment. Enjoy loyalty additions and wealth boosters to take your wealth up a notch as you continue to invest for the long term. So embrace the new age ULIP to make your savings work for you and secure your family’s future from any uncertainties.

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Annual Income (In Lacs)

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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