The Complete Guide to ULIPs

Ultimate Guide to ULIPs

24 Jun 2019
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Making right investments is essential for long-term wealth creation and financial security. If you are familiar with investments, you would have definitely come across ULIP investments. They have gained wide popularity among investors in India as they are versatile and offer multiple benefits. If you are planning to invest in ULIPs, here is the ultimate guide to ULIP investments:-

What is a ULIP Plan?

A Unit Linked Investment Plan or ULIP is a hybrid investment avenue that combines the dual benefit of life insurance and 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. The best part about ULIPs is that they are goal-based investments and can be used to achieve a wide range of long-term financial goals such as retirement planning, child’s future planning, investment planning, insurance planning as well as tax planning.

Benefits of ULIP Plans

Flexibility –

ULIPs are an extremely flexible investment that can adapt to your ever-changing financial needs. It gives you the flexibility to switch between ULIP funds and match your changing risk appetite. You can also make partial withdrawals if you are in urgent need of funds. And if you wish, you can also make lump-sum additions to your premiums and increase your investments at any point of time, through the top-up facility.

Market Linked Returns –

ULIP plan helps you reap the benefit of market investments with relatively lower risks than investing directly. As a ULIP policyholder, you can choose from 6-7 types of investment funds according to your risk appetite and investments goals.

Investment with Life Protection –

You get the dual benefit of life insurance along with market-linked investments from a single scheme. Besides securing the future of your loved ones, you also get the opportunity to gain higher ULIP returns and maximize your wealth potential.

Plan for the Crucial Milestones in Life –

Given the hybrid nature of ULIPs, they can be utilised to meet the expenses arising at the time of important milestones in life such as marriage, college education, etc. Hence, ULIPs are a great investment tool for planning your long term financial goals.

Protect The Future Of Your Loved Ones –

The life insurance component of a ULIP plan helps you secure the future of your family in the event of your unfortunate demise. This ensures that their financial condition does not get affected even in your absence.

Financial Security Post Retirement –

A financially secure retirement is essential for peace of mind. Retirement ULIP plans can help you secure the golden years of your life without straining your current budget. By investing a small sum as premium, you can build up a substantial corpus for your retirement.

Transparent Structure –

ULIP plans are very transparent in term of the charges involved as well as the investment portfolio. If you invest in a Bajaj Allianz ULIP Plans with Finserv Markets, you will be regularly intimated. Hence, you will be well informed about the value and number of fund units that you hold.

Freedom to Choose your Investment Mix –

With ULIP plans, you have the flexibility to choose from a wide selection of fund options based on your risk appetite. If you seek higher returns and have a high-risk appetite, you can invest in equity-based ULIP plans. On the other hand, if you have a low-risk appetite and are satisfied with medium to low returns, you can choose to invest in a debt fund or balanced funds.

Tax Benefits –

ULIPs are one of the most effective tax saving investments available in the market today. The premiums paid towards ULIPs are exempt from tax up to Rs 1.5 Lakh under the section 80C. Moreover, ULIP returns generated are tax-free under section 10(10D) of the Income Tax Act.

Types of ULIP Plans

Classification by Death Benefit:

  1. Type-I ULIP –

  2. In a Type I ULIP plan, the nominee gets the higher of either the Sum Assured or Fund Value as a death benefit. If the policyholder dies 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, if the ULIP fund value exceeds the sum assured, the death benefit will be the accumulated amount in the fund.

  3. Type-II ULIP Plan –

  4. In 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 Investment Purpose:

  1. Child Education Plans –

  2. This type of ULIP plans are designed to generate adequate wealth to support your child’s future.

  3. Pension/Retirement Plans –

  4. Retirement ULIP plans help you secure the golden years of life by making small yet steady investments during your earning days. The subsequent amount collected as corpus is used to purchase an annuity post your retirement.

  5. Investment Plans –

  6. 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 ULIP Funds:

  1. Debt Funds –

  2. 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.

  3. Equity Funds –

  4. 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.

  5. Balanced Funds –

  6. 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.

Now that you understand the basic details of ULIP plans, you will be able to make an informed investment decision. Finserv Markets brings you a variety of 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 Allianz ULIP plans, visit Finserv Markets.

 

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