United-Linked Insurance Plans or ULIPs as they are known are investment tools that offer dual benefit of life cover and investment. The premium paid towards ULIPs is divided into two parts, where one part goes for life cover and the other is invested in market-linked funds. In the past with high fee structures and discrepancies in policies, ULIPs had failed to build the faith in the minds of consumers. But due to revision of the policy by IRDAI, ULIP bounced back into the markets and today there are the most preferred and trusted products that customers purchase.
The products are customer friendly and keep low maintenance costs. High agent commissions and charges have been capped, due to which ULIPs are giving a tough competition to other investment products. The new ULIP avatar gets rid of the earlier redundancies and makes a commendable effort to hold its foot strong in the swaying markets.
While a portion of the premium gets invested in market-linked funds there are few misconceptions amongst the consumers that have to be cleared in time. Let’s understand them in detail. Most people mistakenly take ULIPs solely as equity market products. But on the contrary, ULIPs offer greater flexibility by allowing investments in both equity and debt funds. While equity is ideal for the investment s to grow at a quicker pace, debt is there to neutralize the losses and produce balance earnings in the end.
An investor in the equity market can enjoy benefits of strong economic growth, better market activities and on the other hand, debt funds promise greater security and help you make your money grow. But the returns in debt are modest and in equity, you can expect high returns. The product and the type of funds for investment completely depend on customer’s income source, risk appetite, financial goals and market conditions. The current economic condition and future forecasts will help ULIP holder to invest in funds like equity-orient funds, or debt oriented accordingly.
One of the unique features of ULIP is fund switching. It allows investors with the right market knowledge to switch around their investment portfolio for booking higher returns. It enables the ULIP holder to shift from equity to debt when markets become volatile and vice-versa. Customers get a specified number of free switches per year and there are no associated tax liabilities.
Although, technically ULIPs and mutual funds look same as they invest your money in the stock markets, but there is a vast difference. ULIPs offer better prospects over mutual funds. You can choose your fund type, avail fund switches during the tenure, make partial withdrawals, etc. Tax benefits under Section 80C of the Income Tax Act could also be availed ULIP.
While taking your pick between the insurance cover and investment returns your real quest is what goals have you set for life. Instead of demystifying which is better among the two understand your financial requirement. Whether you want to make a pure investment or need an insurance cover as well for family’s financial needs? Do you want guaranteed returns or you’re willing to take some risks? The edge on ULIP is that it offers insurance cover apart from market linked investment. It’s like shielding your beneficiaries from any mishaps while you run in a race to make money.