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Beginner’s Guide to ULIPs

By Finserv MARKETS - Jan 16,2019
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Over the years, ULIPs have become a popular hybrid financial investment plan in India. ULIPs are considered as one of the most versatile product offerings to be developed by the insurance industry. Here’s a simple guide for you to start with the best ULIP scheme suited to your life goals.

What are ULIPs?

A ULIP or Unit Linked Insurance Plan is a unique and innovative market-linked product that combines the best of benefits of both an investment as well as life insurance. In simpler terms, ULIP act as a single integrated plan for you to enjoy the dual benefits of investment in market instruments such stocks, bonds and funds (equity, debt or both) as well as protect your future with a life insurance risk cover. Insurance companies had introduced ULIPs way back in the year 2005, where policy bearers who wanted to bear high-risk investments could get a better return on their investment.

How do they work?

With unit-linked insurance plans, your premium is primarily divided into two components. One part of your premium is funnelled as your insurance cover, while the rest is utilised as a common pool for investment into market instruments such as stocks, bonds or funds. Investments in funds can either be equity only, debt only or a hybrid that is a mix of both. The best part about ULIP is that the premium can be paid on a monthly, quarterly, biannually or annual basis, based on your convenience.

Unlike endowment plans that offer low returns with low risk, ULIPs can cater to investors of all types of risk appetites. Investors who have a low-risk appetite can choose ULIP plans that invest in low-risk market instruments such as Corporate and Government Bonds. On the other hand, investors with a high-risk appetite can invest in ULIP plans that majorly invest in Stocks and Equity only funds. The lock-in period for a ULIP plan is 5 years. However, if you want to reap the maximum benefits, it is advisable that you stay invested for a longer term to average out market fluctuations.

Why should you invest in ULIPs?

  • Tax Savings under Section 80C and Section 10(10D) of the Income-tax Act, 1961
  • Significantly less fund Switching Charges compared to mutual funds
  • Life Cover
  • Aids goal-based planning
  • Flexibility in terms of risks basis life stage planning
  • Relatively more cost-effective than mutual funds in the long run

How to choose the right ULIP Plan?

Apart from the trailing returns and the Net Asset Value (NAV), prospective investors can only depend on the advice of their distributors on which ULIP to invest in. Depending on the term of the policy, an investor accumulates units which are essentially the investment in either equity, debt only or hybrid market instruments. Long term ULIP holders can opt for the equity oriented fund option which is conducive for growth. This is primarily due to the averaging of market fluctuations for the long period of time. Recently, the premium charges for Unit Linked Insurance Plans have reduced significantly and it is observed that the returns can be doubled if one has invested in equity funds. Here are the key factors to consider while choosing  a ULIP plan: –

  • Personal Financial goals – Right from funding your child’s education to retirement planning, a ULIP plan can help you fulfil your long term financial goals.
  • Compare ULIP offerings – Once must compare various ULIP plans based on key factors such as past performance, asset allocation, premium payments etc.
  • Investment Horizon– Ensure that the investment period for your chosen ULIP plan matches your long-term financial goals.
  • Option to Rebalance Asset Allocation– Make sure that your ULIP plan offers automatic rebalance asset allocation which helps you switch between funds based on risk appetite and life stage.

ULIPs are not only a great way to meet your financial goals but also a way to protect the future of your loved ones. It is, therefore, a symbiosis of insuring and investing your hard-earned money in the best possible way. Finserv MARKETS brings to you an assortment of eight ULIP schemes – top rated by Morning Star with a fund performance that has seen returns of as much as 29.7% in the past 5 years. Furthermore, our ULIP investments offer unique benefits like enhanced maturity benefit, zero switching charges, high assets under management and much more!

Invest in ULIPs with Finserv MARKETS to enjoy potentially higher returns and simultaneously secure your future. Now that you know the basics of ulips, you can read more about the types of unit linked insurance plans.

To know more on ULIP investments in depth, you can check out these blogs:

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Bajaj Finserv Direct Limited ("BFDL") is primarily engaged in distribution of financial products and services through its digital platform (“Bajaj Finserv MARKETS”) and inter alia renders services of customer acquisition, providing preliminary credit support activities, fulfilment services and post-acquisition customer services to Banks, NBFCs, HFCs. BFDL is also a registered Corporate Agent (Composite) under valid IRDAI registration number: CA0551 valid till 10-Apr-2024 for solicitation and servicing of Insurance Products. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522