If you are looking to invest somewhere with retirement as a goal in your mind, then a Unit Linked Insurance Plan is the right choice for you. Investing in a Unit-Linked Insurance Plan will not only help you reduce your tax liability but will also ensure that your wealth grows over the investment period. What’s more? It also offers the protection of a life insurance risk cover that helps you secure your family in case of an unforeseen situation. Let’s see how it works.
ULIPs are an investment cum insurance product which offers the dual benefit of a life insurance cover as well as an investment. You have the flexibility to invest the premium into various market instruments like stocks, bonds or funds (equity, debt or hybrid). What’s more? You can easily switch between funds depending on your risk appetite and life stage goals.
Now that you have a basic understanding of what ULIPs are, here are five compelling reasons to help you make the right decision:
1. Fixed lock-in period
If you are investing in ULIP plans to save for your retirement, you can benefit from the built-in lock-in period. It has a lock-in period of five years. This helps bring in a financial discipline in your life and also ensure that you are not tempted to opt out of your policy and use the money for any other purpose. Every investment you make can be withdrawn only after the completion of the lock-in tenure.
2. High returns
It has been noted that ULIP returns can be higher as compared to any other insurance product and this is primarily due to it being a market-linked product. The amount you pay as a premium can be invested in different asset classes, that can be either equity only, debt only or a hybrid mix of both. You can invest in equity only instruments if you have a high risk and high return outlook. However, it is recommended that you make investments not only based on risk appetite but on life stage goals as well.
3. Dual benefit
A term insurance plan offers you tax benefit and a life cover but does not help grow your wealth. Therefore, you should opt for ULIPs. This investment avenue offers a tax advantage, a life cover, and helps you build your wealth. From a tax saving perspective, these investments can be claimed as a deduction under Section 80C of the Income Tax Act, 1961.
In ULIP plans, you have the flexibility to switch between funds. If you feel that a particular fund is not performing well, you can switch from one fund to another with ease and convenience. You can choose the funds based on your long-term goals as well as your risk appetite. You are also free to change the fund allocation at any time.
5. Ideal wealth-creating tool
As compared to any other traditional investment product, ULIPs have shown higher returns over a long term and provide tax benefits under Section 10D of the Income Tax Act, 1961. This implies that your returns on maturity are exempt from tax. Many fixed deposit investors are now switching to unit linked insurance plans for their flexibility and high return-generating capacity.
6. No LTCG Tax on ULIP Returns
Apart from tax exemptions under 80C and 10D, unit linked insurance plans are also exempted from the LTCG tax. The Long Term Capital Gains tax is levied on products like equity investments, mutual funds and ELSS. As per the LTCG rules, the returns earned on these investments are taxed at 10% on profits exceeding Rs. 1 lakh. But the returns you earn in the long run are exempt from this LTCG tax, helping you to accumulate a larger corpus for your retired life.
Thus, ULIP is an ideal investment tool for your retirement plans. The trick is to choose the right fund at the right time. So why wait? Start your retirement planning with Finserv MARKETS today!
To know more on ULIP investments in depth, you can check out these blogs:
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