With sky-rocketing costs and a 10% education inflation rate, it’s becoming a necessity for parents to invest in a child plan to meet their children’s needs. A Unit-Linked Insurance Plan (ULIP) is the perfect solution, which pools in your premium payments to build a large corpus on maturity. It invests some of the premiums in financial instruments like a debt or equity fund and the rest in an insurance plan. So, it works as an investment plan and an insurance policy and provides air-tight financial security for your child’s future.
There are also specific ULIP child plans. They act as a hedge against inflation and an unforeseen event that could hinder your child’s future. The dual ULIP benefits offer protection with life cover and financial returns with investment. They provide financial stability with a partial withdrawal facility to finance every milestone in your children’s future.
But aside from that, another one of the ULIP benefits is that they come with large amounts of tax deductions. Generally, investment instruments are not entirely tax free, but since ULIPs also offer a life cover, they provide the added benefit of being tax deductible. Section 80C allows you to claim a 10% deduction on premium payments for ULIPs of up to INR 1.5 lakhs. The paid charges collected by the insurance company can also be claimed as deductions.
When considering policies to secure your child’s future, you can avail a specific ULIP child plan on Finserv MARKETS. The ULIPs child plan on Finserv MARKETS enjoys good ratings with approximate returns up to 11% in a 5-year investment period. You also won’t face any charges for fund allocation and mortality. You can also enjoy flexibility in choosing from 4 investment portfolio ULIP strategies to plan better for high returns.
Before getting started, take a look at the ULIP checklist to ensure you choose the best fund for your profile. Then let’s dive into how ULIPs are the best way to invest in your child’s future while saving tax.
ULIPs have a lock-in period of five years. The consistent premium payments is a key ULIP feature that helps you develop the habit of disciplined investing. As a long-term insurance product, you can claim tax benefits every year until the last premium payment. Generally, ULIPs are an investment plan requiring either monthly systematic or annual lump sum payments. This can be seen as a form of accumulating savings to obtain at the end of the lock-in period. The savings can be kept away for your children’s future or spent immediately to meet your child’s needs.
ULIPs have an equity advantage that can bring you better potential returns than other investment products. They invest some parts of your paid premiums in different assets across different funds. Historically, a key ULIP benefit is that they bring you tax-saving funds in double-digits. The returns you’ll get from ULIPs on maturity is based on the equity market performance during the tenure period. With the tax-free maturity amount, ULIPs are a better choice for meeting financial requirements in your children’s future with higher returns and a bigger take-home amount.
We all have different amounts of experience, risk appetite, and financial goals. If you’re a beginner dabbling in investment securities, ULIPs are a good investment to opt for. You can switch between different funds during the tenure and choose either growth, equity, balanced, or income funds. All of this is based on your risk profile or financial goals. You do not have to track the companies you invest in. All you need to do is choose a policy, change your fund allocations a few times during the tenure, and run the fund till maturity. This guarantees long-term financial and protection benefits.
ULIPs always have more of an edge than most securities because of one major feature. Being insurance products, short-term gains in ULIPs are tax-free under Section 10D. Moreover, LTCG tax gives insurance companies a boost in competitiveness as it puts a 10% tax on mutual funds, a popular investment option in India. Since ULIPs is viewed as more of an insurance product, the LTCG tax isn’t applicable. This makes ULIPs more attractive as an investment. In addition to this, ULIP investors enjoy equity, debt, and liquid fund options with tax-free short-term and long-term gains. This not only gets you security with life coverage for times of difficulty but also tax-free wealth to save or invest in other lucrative securities.
Overall, with dual benefits of protection and investment, ULIPs bring you a large corpus to financially secure your child’s future. If you are smart in choosing the right fund, you will be looking at a large maturity corpus. You can either save that money for your child’s future or invest it in fulfilling your child’s needs. You can do this while also saving large amounts of taxes yearly thereby, maximizing your annual take-home salaries. At the end of 10-20 year period, you will have the financial security you need to give your children the bright future they deserve. And here’s one last tip before signing off: start early!