ULIP - Long Term Capital Tax

Saving taxes is one of the most crucial elements of financial planning. ULIPs are one of the most effective tax saving investments available in the market today. Right from the premium paid towards a ULIP plan to the returns earned, every aspect under ULIPs is tax free. Here’s everything you need to know about ULIPs and its various tax benefits:- 

What is ULIP?

A Unit Linked Investment Plan or ULIP is an investment instrument that offers the dual benefit of life insurance along with market-linked investments. ULIP investments allow you to invest in different types of investment instruments such as stocks, bonds, as well as mutual funds. A portion of the ULIP premium is utilized 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.

Features of ULIP

1.Dual Benefits –

ULIP investments offer dual benefits of life insurance and market-linked returns. Hence, besides offering financial security to your family throughout the policy period, it also helps you earn potentially higher returns over the long term.

2.Flexibility to invest according to risk appetite –

ULIPs are a flexible investment avenue that gives you the flexibility to choose funds according to your risk appetite. Generally, ULIPs come with a range of equity, debt and balanced funds; you can switch between different ULIP types as per your financial needs.

3.Long term Investment –

ULIPs are long term investments, and therefore, it’s real benefits can only be seen after staying invested in it for a long time, say 15-20 years. By staying invested for a long period, risks such as market fluctuations and charges deducted, will be compensated. Additionally, a higher portion of the premium will be diverted into investment avenues, which consequently enables you to reap maximum returns.

4.Triple EEE tax benefit –

ULIPs fall under the EEE, i.e. Exempt-Exempt-Exempt taxation category, which means they are exempt from tax during all three phases, i.e., the investment, earnings and withdrawal stage. The premium paid towards ULIP plans can be claimed as deductions from your taxable income under section 80C of the Income Tax Act each year. The interest earned from ULIP investments is also exempted from tax under section 10(10D) of the Income Tax Act. Hence, ULIP plans are completely free from tax. Tax savings is one of the most important ULIP benefits.

Long Term Capital Tax for ULIPs

Unlike other long-term investment avenues like mutual funds, ULIPs are exempt from Long Term Capital Gain Tax or LTCG tax. Freedom from LTCG tax makes ULIPs one of the most tax-saving investment avenues available in the market today. So if you want to save your precious income from heavy taxes, investing in a ULIP plan is the prudent option.

 

Things to Consider Before Investing In ULIPs

1.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 ULIP plans customized to your goals.

2.Investment Duration –

ULIP plans are a long term investment 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? Only if you plan to invest for the long term, investing in a ULIP plan is prudent. 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.

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.

ULIP Calculator

You can use ULIP calculators to plan your ULIP investments beforehand. A ULIP calculator will help you calculate the premiums and estimate the returns. ULIP calculators consider factors such as premium amount and policy tenure to calculate the ULIP returns offered by a specific policy.

General FAQs

What is NAV in ULIPs?

Net Asset Value (NAV) refers to the price of units of in fund. It keeps fluctuating on a daily basis based on market conditions.

 

What is Premium Redirection?

Premium Redirection is a special ULIP feature that allows you to invest your future premiums in a different fund. However, the premiums invested earlier will remain in the same funds as chosen by you.

 

What is Fund Value, and how is it calculated?

Fund value refers to the total value of your premiums that are invested in various funds of your choice. The fund value is calculated using the below formula:

Fund Value = Total Number of units under a policy x Net Asset Value

Here’s an example; if you own 1000 units of a ULIP fund for which the NAV is 100, the total fund value will be Rs. 1,00,000.

Now that you know the various tax benefits offered by ULIPs, don’t wait further to take full advantage of its benefits. At Finserv Markets, we offer specialized ULIP plans tailor-made for different needs and life goals. Head to Finserv Markets to read more about what is ULIP and what are the types of ULIPs.

 

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