ULIPs Growth Potential: How They Can Boost Your Wealth

2025-06-05

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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:

Key Takeaways

ULIPs offer dual benefits, which are market-linked investment and life insurance in a single plan for long-term wealth and protection.
With a 5-year lock-in period, ULIPs encourage disciplined saving and benefit from long-term compounding returns.
ULIPs allow free switching between equity and debt funds, offering more control during market fluctuations.
ULIP maturity proceeds are tax-free under Section 10(10D), making them more tax-efficient than mutual funds or FDs.
In contrast to FDs, PPFs, and endowment policies, ULIPs combine insurance with market-linked returns for increased growth.

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.

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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.

Did You Know?

To ensure ULIP taxation aligns with market investment, a 12.5% LTCG tax will be implemented on yearly premiums exceeding ₹2.5 lakh from 2026.

Source: Charteredclub

Get Protection 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 ULIPs regarding taxation fall in the EEE category. 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.

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ULIP vs. Other Investment Options

ULIPs are long-term financial growth investment tools and when it comes to the planning part, you must compare it with other options. While each of the following investment options has its unique strengths, ULIPs stand out for offering a balance between market-linked returns and life insurance protection. The following are a few comparisons for you to explore:

ULIPs vs Mutual Funds: Both ULIPs and mutual funds offer exposure to equity and debt instruments. In contrast, life protection is not included with mutual fund investments. ULIPs, on the other hand, combine investment and insurance into one plan. In addition, ULIPs allow free fund switches. This, in turn, makes it easier to rebalance your portfolio in response to market changes, a feature that is missing in mutual funds.
ULIPs are more tax-efficient. While the Long-Term Capital Gains (LTCG) tax applies to mutual funds, ULIP proceeds are generally exempt under Section 10(10D), provided specific conditions are met.

ULIPs vs Fixed Deposits (FDs): Fixed Deposits offer minimal risk and modest returns, which is ideal for cautious investors. The interest is fixed but taxable and does not offer protection against inflation. ULIPs, in contrast, can generate inflation-beating returns over the long term, thanks to equity exposure and the ULIP growth rate associated with market performance.

Unlike FDs, ULIPs also offer flexibility in choosing asset classes (equity, debt, or balanced). Moreover, the option to switch between them allows more control over risk and returns.

ULIPs vs Traditional Endowment Plans: Endowment plans focus more on guaranteed returns but often offer lower returns due to their conservative structure. ULIPs are more dynamic, allowing policyholders to participate in market movements. Over a 10 to 15-year horizon, ULIPs have historically shown a better ULIP interest rate when compared to endowment policies, making them more suitable for wealth creation.
ULIPs vs. PPF (Public Provident Fund): With government backing, the PPF is a secure investment with predetermined interest rates and tax incentives. Nevertheless, the PPF's extensive 15-year lock-in period limits its flexibility. ULIPs offer similar tax benefits with a shorter lock-in of 5 years and the potential to earn higher returns if you’re open to moderate market-linked risk.

Conclusion

Unit Linked Insurance Plans (ULIPs), besides being just investment tools, they’re personalised financial journeys that grow with you. Regardless of the agenda, be it child education savings, securing a family’s future, etc., they offer flexibility, growth potential and insurance protection.

While it's true that market-linked instruments carry risks, staying invested in a well-performing ULIP for 10 to 15 years has the potential to generate competitive returns. Through the power of compounding, you can enjoy returns to fulfill all your aspirations. As long as you align the plan with your financial goals and risk profile, ULIPs can be a powerful asset in your wealth-building toolkit.

Glossary

Fund Switching: ULIP feature allowing investors to move money between equity, debt, or balanced funds without extra charges.
Power of Compounding: Earnings reinvested to generate additional income over time, helping to accelerate long-term wealth growth.
Premium Redirection: ULIP option to change future premium allocation among available funds based on market movements or goals.
EEE Tax Status: Exempt-Exempt-Exempt tax treatment, meaning investments, returns, and withdrawals are all tax-free in eligible ULIPs.

FAQs

ULIPs offer life insurance, tax-free maturity, and fund-switching flexibility benefits that are not available with mutual funds.

ULIPs carry market risk but offer life cover and long-term growth, making them safer than pure equity investments.

Yes, ULIPs allow free switching between equity and debt funds to manage risk and align with market trends.

A five-year mandatory lock-in for ULIPs is designed to promote long-term investment gains and cultivate financial responsibility.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.