Unit-Linked Insurance Plans have become very popular among investors. But, before we talk about the risks associated with these plans, let’s first answer the question, what is a ULIP? Unit-linked insurance plans are a unique investment tool that provide insurance as well as investment opportunity to policyholders. Part of the premium you pay will be invested in a fund of your choice, while the balance goes towards providing a life cover. Most people think that these investment avenues are risky, but did you know that you can choose the level of risk in your ULIP investment plan? Let’s take a closer look at the facts.
The Myth – ULIP is a Risky Investment
One of the biggest misconceptions about unit-linked insurance plans is that they are risky investments since they are linked to the stock market. However, the premiums that are paid are not just invested in equity funds, but in debt funds as well, which are a fairly safe investment avenue. The allocation of money in various funds will depend on your personal risk appetite and life stage goals.
Whom Does the Risk Depend On?
ULIP plans allow the investor to decide where their money will be invested. This means that the risk of the investment depends not on the actual plan itself, but on the policyholder.
How Much Risk Are You Willing to Take?
When you purchase a unit linked insurance plan, your portfolio manager will ask you about your personal risk appetite. If it’s fairly high, you can invest in equity funds, which typically provide high returns but can be risky. If your risk appetite is low, you could go for the safer option of debt funds or a hybrid mix of both.
The Options Available?
The best unit linked insurance plans are the ones that allow you to make the most of the money that you already have. This is why you can choose whether you want to invest in equity funds, debt funds, or in balanced funds, which offer you a good mix of both debt and equity instruments. Additionally, your ULIP plan will allow you to adjust your investment portfolio and shuffle your investments around based on how well or how poorly the market is doing at a particular point in time. Unit linked insurance plans at Finserv MARKETS give you the freedom to switch between these funds, unlimited times, as per your needs and changing risk appetite.
When investing in ULIPs, it’s vital to remember that these plans are long-term investments, so you may not see instant returns. However, if you stick with your investment and balance your portfolio properly, you will be well on your way to accomplishing all your financial goals.
What’s more? You can enjoy ULIP tax benefits by claiming deduction under Section 80C and Section 10D of the Income Tax Act, 1961. They also do not fall under the purview of Long-Term Capital Gains (LTCG) tax. Hence, making them even more attractive as a potential investment avenue.
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