Unit-Linked Insurance Plans (ULIPs) offer many benefits that secure your and your family’s financial future. It is a life insurance policy that also generates substantial wealth by investing a portion of your premium into equity, debt, or a combination of both types of funds. You have the freedom to choose among these funds, depending on your monetary goals and risk tenacity.
Putting your money in equity-based options will increase the possibility of higher returns. However, it can prove to be risky. If you are happy with moderate ULIP returns, consider investing in debt funds. They are significantly less risky.
ULIPs provide you with a variety of flexible options to aid you in managing the investment as per your needs. Here are some ideas that can help you earn lucrative returns.
1. Use the fund-switching option
The fund-switching facility is one of the unique features of ULIP. You can pick from equity and debt funds when purchasing a ULIP. During the policy tenure, you can use the fund-switching feature to reallocate your investment among different funds, depending on your financial goals and risk appetite.
For example, when the financial market is performing well, you can consider moving your capital to equity-based funds to let your money grow faster. However, if the market becomes volatile at any point, you can always shift the investment to debt funds to lower the possibility of a loss.
2. Stay invested for a longer time
A ULIP plan is a long-term investment instrument that can generate higher returns over an extended tenure. If you decide to discontinue the policy after the lock-in period of five years, you will lose the benefit through the power of compounding. However, if you stay invested for 10 to 15 years, your capital will accumulate considerable wealth.
Moreover, long-term investment with ULIPs has other plus points. Firstly, you become more disciplined in terms of investment habits. As you get better at it, you can use your skills to maximize the returns. Also, some insurance companies offer additional benefits such as the return of charges to people who stay invested for long.
3. Select the right funds
Equity and debt funds invest in different assets. If you invest in equity-based instruments under ULIP, you can generate higher profits. Even though equity investments are riskier, you can choose them to meet your financial goals faster. If you are not willing to take high risk, allocate the capital into debt funds. Their returns are modest, but they attract less risk.
4. Utilize the tax benefits
A ULIP plan comes with multiple tax exemptions that help you in saving more money. When filing your taxes, you can opt for an annual tax deduction of up to INR 1.5 lakh on the premium paid. This benefit is available under Section 80C of the Income Tax Act, 1961.
If you bought the ULIP before February 1, 2021, the maturity payout is tax-exempt under Section 10 (10D) of the Income Tax Act, 1961. For policies bought after that, you can get a complete tax-free benefit only if your yearly premium payment is under INR 2.5 lakh.
However, ULIP’s death benefit is tax-free, irrespective of its initiation date or premium.
5. Study the financial market
The growth of your ULIP funds is linked to the financial market. It is important that you learn how the market functions to ensure that you get the best returns out of your ULIP. When you are aware of the market’s ups and downs, it becomes easier to utilize the fund-switching option to increase the returns.
Apart from these tips, make it a point to invest in a ULIP that has been earning attractive returns historically. Well-performing ULIP funds have a higher probability of generating promising returns. You can compare the past performances of different ULIPs online to get a clear idea.