Everyone knows how important it is to save and invest money in the best investment plans. Instead of parking your money in a bank account, it is much better to invest in a plan that helps you yield profit both in the short and long term. Doing so helps you achieve short term investment goals and ensures you are financially prepared to meet any unexpected challenges that life may throw at you such as emergency medical expenses or bills. One such short term investment plan one can consider is ULIP.
What is ULIP?
There is a way to offer a safety net for your family while still generating wealth through investments and ULIPs are one such plan that can help you do that. A unit-linked insurance plan is a combination of insurance plans in which a portion of the monthly premium paid by the policyholder is used for the insurance and the remainder is invested, just like it would be in a mutual fund.
ULIPs allow policyholders to invest in either equities or debt, depending on their risk tolerance. Equity funds may reward investors with an aggressive outlook, whilst debt funds are better suited to conservative investors.
Can ULIP help me achieve short-term goals?
What one person defines as short-term may not imply the same thing to another. Most unit-linked insurance policies have five-year lock-in periods, which means you can’t get your money back before then. One may discontinue, but repayment will occur only after five years. Furthermore, surrendering a policy early incurs specific fees, making it extremely costly to your goal of saving money and building wealth. While the returns on the portion of the investment are market-dependent, these expenses can be avoided by not terminating the policy before five years have elapsed.
If short term investment for you means five years, then a ULIP can help you reach your short-term goals by saving your money and allowing it to grow over the course of five years.
Over time, unit-linked insurance plans (ULIPs) consistently outperform other insurance policies. This is primarily due to the equity aspect. Unlike conventional insurance policies, ULIPs invest the investment portion of your premium in several funds, thereby diversifying risk and maximising gains. Moreover, ULIPs are extremely flexible, allowing you to swap between investing options over time.
ULIPs also offer investors a tax benefit of 1.5 lakh rupees. Over time, the sum accumulates and becomes a significant amount, so in the long run, not only does the insurance and investment component help grow your wealth, but the tax-saving part also helps protect money.
Taking these three factors into account, it is safe to claim that unit-linked insurance plans are among the best investment plans because they help you save money, offer life insurance, and create wealth through investment.
Why does it make complete sense to consider ULIP for short-term gains?
Market-Linked Returns: ULIPs allow investors to participate in the future growth of the financial markets. Investing in market-linked funds allows you to benefit from the performance of several asset classes, including equities, bonds, and money market instruments. This allows you to earn potentially larger returns than usual savings methods.
Flexibility and Customisation: ULIPs are considered the best investment plans due to their ability to provide flexibility, allowing investors to adjust their investing plan based on their risk tolerance and financial objectives. You can move between the several funds offered by the ULIP based on your market outlook and investment preferences. This flexibility allows you to optimise your investment portfolio in response to changing market conditions.
Tax Benefits: Investing in ULIPs can yield significant tax benefits. Premiums paid for ULIPs are eligible for tax deductions under Section 80C of the Income Tax Act, subject to a cap. Furthermore, the maturity proceeds and death benefits from ULIPs are often tax-free, subject to applicable tax rules. This makes ULIPs a tax-efficient investment choice for those who want to reduce their tax outgo.
Life Insurance Coverage: One of the primary benefits of ULIPs is that they provide life insurance coverage. In addition to the potential for creating wealth, ULIPs offer a financial safety net for your loved ones in the case of your untimely death. Life insurance protects your family’s financial needs, providing them with much-needed financial security and stability.
Wealth Generation and Long-Term Growth: ULIPs are intended to promote long-term wealth growth. By investing in ULIPs over an extended length of time, you may be able to reap the benefits of compounding. Over time, the profits on your ULIP investment can help you reach your financial goals, such as buying a property, supporting your child’s education, or saving for retirement.
Various types of ULIPs: Having a varied portfolio of ULIPs can be quite helpful to investors. ULIPs come in a variety of investment methods and risk profiles to suit investors’ particular preferences and financial goals. Whether you want fast growth, balanced returns, or a steady income, there is a ULIP for you. By selecting from a range of ULIP’s best investment plans, investors can diversify their investment portfolio, reduce risk, and maximise their chances of long-term wealth building.
Fund Switching: ULIPs provide the flexibility to swap between funds based on their demands and market conditions. This allows you to coordinate all of your assets based on your risk tolerance and financial targets. If you’re willing to take on additional risk, you can easily move to equity funds. If you’re not willing to take risks, you can move to debt funds.
Redirection of Premium: This allows policyholders to invest future premiums in various funds. Past premium payments will stay invested in the previously chosen fund, whilst future premium payments will be invested in a new type of fund based on your selection.
Conclusion
Customers can choose debt funds to reduce risk while earning reasonable returns. There are balanced funds that include the benefits of both equity and debt fund investments while posing no risk to money. By investing in an equity-based ULIP, you can meet your short- term financial objectives. With a 5-year or longer investment horizon, ULIPs provide considerable financial benefits.