At a time when share market investments and mutual funds were dominating individual portfolios, Unit Linked Inusrance Plan investments gained the limelight by offering the promise of potentially high returns along with the benefit of a life cover. Investing in a ULIP Plan enables you to explore capital market investments with limited risks while bestowing the benefit of a life cover. Today, ULIPs have become one of the most popular investment avenues in the market. If you want to choose the right ULIP plan, it’s essential to start right from the basics:
A Unit Linked Investment Plan or ULIP is a unique investment avenue that offers the dual benefit of life insurance along with market-linked investments. As a ULIP policyholder, you have the freedom to invest in different types of investment instruments such as stocks, bonds as well as mutual funds. A part of the premium paid towards ULIP plans is utilised to provide you with a life cover, while the rest of the corpus is invested in the equity or debt markets as per your risk appetite. Both the investment and the protection component can be managed according to specific buyer choices and needs.
Classification by Investment Purpose:
1. Child education plans – Child education ULIP plans are designed to generate adequate wealth to support your child’s future.
2. Pension/Retirement Plans – Retirement ULIP plans help you build a retirement corpus by letting you choose a suitable plan tenure and pay premiums for the selected term. On maturity of the policy you have different options to avail the fund value.
3. Investment Plans – ULIP investment plans are designed to accumulate wealth and maximise it over a period of time. This type of plan is ideal for millennial investors in their late twenties and early thirties to stay prepared for their future financial goals.
Classification by Death Benefit:
ULIP Plans are broadly classified into 2 types, namely type 1 and type 2 ULIPs. Let us understand these one by one:
1. Type-I ULIP – Under the Type I ULIP plan, the nominee gets the higher of either the Sum Assured or Fund Value as a death benefit. In case the policyholder meets with an untimely demise during the initial years of the policy when the fund value is lower than the sum assured, the insurance provider will pay the agreed sum to the assured's nominee. However, when the ULIP fund value exceeds the sum assured, the death benefit will be the accumulated amount in the fund.
2. Type-II ULIP Plan – Under a Type II ULIP plan, the nominee gets the sum of both i.e. Sum Assured and Fund Value in case the policyholder meets with an untimely demise. However, given the added risks an insurer assumes from Type II ULIP plans, it charges additional premium from the policyholder.
Classification by ULIP Funds:
1. Debt Funds – Debt based ULIP funds invest in debt funds like corporate bonds, government securities, etc. Debt funds carry low risks and offer relatively lower returns as compared to equity funds. Debt fund ULIP plans are ideal for investors with low-risk appetite.
2. Equity Funds – Equity based ULIP funds invest in equities and stocks of companies. They offer the highest reward compared to other types of ULIP plans. However, they carry relatively higher risks. Hence equity-based ULIP plans are ideal for investors with a high-risk appetite.
3. Balanced Funds – Balanced ULIP funds are a stable investment option that invests in a combination of equity and debt funds. The premium paid is invested in fixed components like corporate bonds and varied components like the stock market. Hence, balanced ULIP funds fall in the medium-risk category.
Transparency in terms of features, benefits and charges is one of the key benefits of ULIP plans. This ensures that investors are able to make an informed investment decision.
2. Multiple Benefits out of a Single Scheme:
The best feature of a ULIP policy are the multiple benefits. Investors can benefit not just from capital market returns but also secure a life cover. Hence ULIPs are an ideal investment avenue for investors who have a low-risk appetite but want to reap the benefits of market investments, nonetheless.
3. Tax Benefits:
ULIPs are one of the most effective tax saving investments available in the market today. The premium paid towards ULIPs is exempt from tax up to Rs 1.5 Lakh under the section 80C. Moreover, the returns generated from ULIPs are tax-free under section 10(10D) of the Income Tax Act.
4. Risk Mitigation:
Since ULIPs invest in a variety of funds managed by professional fund managers, they are suitable for investors with varying degrees of risk appetite. Hence, ULIPs are a great investment avenue for investors who wish to avail the advantage of market growth without actually participating in the stock market.
1. Investment Duration –
ULIP plans are a long term investment instrument with a minimum lock-in period of five years or more. So before you invest, you must ask yourself- how long do you want your money to be invested in a policy? It makes sense to invest in a ULIP plan, only if you plan to invest for the long term. Staying invested for the long term gives the best possible returns from a ULIP plan. Longer duration helps you earn compounding returns from the growing markets.
2. Personal Investment Goals –
As you must have read above, ULIPs allow you to choose from various plans according to your investment objective and risk-bearing capacity. So before you invest in a ULIP, make sure to define your long term investment objective. Once that is clear, you can choose a ULIP plan that aligns with your personal investment goals. At Finserv Markets, you can choose from a variety of best ULIP plans customized to match your goals.
3. Understand ULIP charges –
All investment plans involve certain charges and ULIPs are no different. The charges are levied as a fee for managing your investments. Read through the policy documents to understand the various charges and how it will impact your investment. With Bajaj Allianz ULIP Plans, all the charges are detailed in the ULIP policy document itself, so that you have a clear idea about what you pay for and how the funds are used.
Now that you know how to choose the right ULIP plan, you will be able to make an informed investment decision. Finserv Markets brings you a variety of Bajaj ULIP plans from Bajaj Allianz tailored to meet your diverse financial and aspirational needs. Whether you want to save for retirement, your child’s education or invest your savings for greater returns, we have ULIP plans for every need. To know more or invest in Bajaj ULIP plans, visit Finserv Markets.
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