Investors love unit-linked insurance plans because it combines life insurance and an investment plan in one single policy. ULIP plans also provide the flexibility to switch funds according to risk appetite and market developments. They are exempt from long-time capital gains tax (LTCG tax) unlike mutual fund and equity investments; it also comes with an Exempt, Exempt, Exempt (EEE) status, therefore it offers unique tax benefits.
Apart from all these benefits, a ULIP investment plan is ideally designed for the current market environment. With consistent long-term performance, it provides investors the leverage to tide over an increasingly volatile market. Let’s understand how unit-linked investment plans are the right choice in present market conditions.
Freedom of switching funds
A ULIP investment plan gives you the opportunity to rethink your investment strategy when the markets are volatile. You can switch between funds and reduce your exposure to equities to protect your fund value.
For instance, with Bajaj Allianz Life Goal Assure plan available on Finserv MARKETS, you have the freedom and flexibility to utilize 4 investment portfolio strategies and 8 fund options with free fund switches to optimize your investment.
ULIPs score over mutual funds when it comes to switching funds. In a mutual fund, you have to sell the units of a particular fund and wait for the settlement to complete. It can also attract exit load as extra charges as well as taxes.
MorningStar, an independent investment rating agency, has provided 5-star ratings to several ULIP funds over the past decade. Their ratings show how some plans have offered stable and consistent returns even during times of extreme volatility and uncertainty.
For example, Bajaj Allianz ULIP plans available on Finserv MARKETS have enjoyed excellent ratings and provided returns as high as 25% over a 5-year investment period, as per Morning Star. Bajaj Allianz Life Goal Assure plan under the Accelerator Mid-Cap Fund II, which is an equity-based fund, has provided returns of 25.1% for the past five years.
Return of mortality charge
A ULIP investment plan provides both insurance coverage and wealth creation opportunity under a single plan and investors have to pay premiums to invest in the plan. Since all plans include life protection, a portion of the premium goes towards mortality charges. The mortality charge is the cost of providing life insurance to the policyholder.
However, with Bajaj Allianz Life Goal Assure the insurer will return the mortality charge on the maturity of the investment plan. Therefore, the life insurance cover is practically free if the policyholder survives the policy term.
Enormous tax savings
Contrary to mutual funds inviting LTCG tax, these plans not only provide volatility-proof investment opportunities but comparatively better tax benefits. Premiums paid are eligible for tax deductions up to Rs. 1.5 lakh. Since ULIP plans fall under the EEE category, not only the premium but the death and maturity benefits are exempt from tax as well.
Fund boosters and loyalty additions
ULIP investors also get the opportunity to enhance their fund value through loyalty additions. These are bonuses provided by the insurer for staying loyal to the plan. Generally, loyalty additions are applicable for 10-year term plans and it helps in increasing your fund value up to 1.5%. However, you have to pay your premiums regularly to take advantage of these additions.
Apart from loyalty additions, Bajaj Allianz Life Goal Assure plan available on Finserv MARKETS also offers fund boosters which again help increase the regular premium fund value by up to 60%. Note that you have to pay your premium regularly to be eligible for fund boosters and they are only provided on maturity.
These are sound reasons why such plans make even more sense in an increasingly volatile market. It is in fact the best investment option under prevailing market conditions. For first-time investors who don’t want to carry the risk of equities or even mutual funds, enjoy the advantages of high ULIP returns with considerably low-risk. With the flexibility to easily switch funds, life coverage, tax benefits, and higher returns, a unit linked insurance plan is a perfect shelter to tide an uncertain market if you enter with a long-term investment horizon.
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