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Is ULIP A Good Investment For Short Term Gains

Is ULIP A Good Investment For Short Term Gains

The importance of saving and investing money is no news to anyone. Everyone knows investing to be one of the cornerstones of responsible financial practices. Investing money helps increase the value of money as compared to it sitting stagnant in a bank account, earning minimal interest. This is key for establishing long term financial security and staying ahead of any curve balls life may throw at you.

Another cornerstone of responsible financial practices is buying insurance to protect you against financial emergencies and unforeseen expenses. Insurance has the potential to help you and your family.

What is a ULIP?

There exists a way to both - provide a safety net to your family and also generate wealth by investing. It's called ULIP or Unit Linked Insurance Plan. A unit linked insurance plan is a combined insurance plan where a part of the monthly premium paid by the insurance policyholder goes towards the payment for the insurance, and the rest is invested, just like it would have been in a mutual fund.

ULIPs have options for investment in either equity or debt, and policyholders can take their pick based on their appetite for risk. Equity funds can favour investors with aggressive mindsets, while debt funds are more suitable for conservative investors.



Short term gains

What short-term means to one, might not be the same for the other. Most unit linked insurance plans come with five year lock in periods, meaning one cannot get the money back before then. One may discontinue, but repayment will take place only after five years have passed. Additionally, surrendering a policy early comes with certain charges, making it highly detrimental to your intention of saving money and generating wealth. While the returns of the investment component are dependent on the market, these charges may be avoided by not discontinuing the policy before five years have elapsed.

Keeping this in mind, if short term to you looks like five years, then sure, ULIP can help you achieve your short term goals by helping preserve your money and letting it grow over the course of five years.

ULIPs over the long term

Unit linked insurance plans, when compared to other insurance products, almost always outperform them. This is mainly because of the equity factor. Unlike other insurance policies,ULIPs invest the investment part of the premium you paid in different funds, diversifying risk and maximising gains.

ULIPs are also flexible, and in the long run, they allow you to switch between investment options. You can choose to switch based on your appetite for risk and the state and direction of the market

ULIPs also provide investors with a tax benefit of 1.5 lakh rupees. Over the years, the sum adds up and ends up being a substantial amount, so in the long term, not only does the insurance and investment component help generate wealth, the tax saving component also helps preserve wealth!

Factoring these three things in, one can safely say that unit linked insurance plans, for the long term, are the best investment plans as they help save money, provide life cover, and also generate wealth by investing your money.

Is ULIP the best investment plan for you?

  • Unit linked insurance plans cut down the number of things one has to juggle. Instead of having to keep an eye on and be mindful of a separate life insurance plan and an investment plan, this acts as a monthly investment added to your insurance premium.
  • It helps save money and generate wealth over time
  • You have the option of switching between portfolios

If all of these seem like the right reasons to you, you should consider investing in the Canara HSBC Oriental Bank of Commerce Life Insurance Invest 4G plan. It is a unit linked insurance plan that allows you to:

  • Choose from seven different funds and four different portfolio strategies
  • Improve wealth generation through loyalty additions and wealth boosters
  • Switch between fund options to take a direction you feel comfortable with
  • Withdraw money partially, so you can deal with any financial needs that may arise

All of these convenient features come together to make it a great experience for you, free from worry, and hence the plan is also called the zero worry plan. So, go ahead and invest in the best investment plan that provides you with life cover and allows you to generate wealth at the same time.

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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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