The Unit Linked Insurance Plans (ULIPs) is an investment instrument that not only provides the benefits of life insurance coverage but also allows you to invest in funds of your choice. Here, a part of your premiums is paid towards life insurance and the remaining portion is invested in equity-oriented funds, debt funds, or a combination of the two.
The minimum lock-in period for ULIP is five years. However, it is highly advisable to invest in long-term ULIPs as the returns are substantially high. Let us understand why ULIP investments are secure.
When mutual fund investments underwent re-categorization as per the regulations issued by the market regulator, ULIPs remained unaffected. This is because ULIPs are managed by the Insurance Regulatory Development Authority of India (IRDAI).
So, no matter what amount you invest in ULIP, the regulators have put caps on the charges involved. In other words, there will be no impact on ULIP returns. There are a few ULIP charges that you need to be aware of –
- Allocation Charges
- Fund Management Charges
- Administration Charges
- Mortality Charges
Also, as we mentioned earlier, ULIP comes with a five-year lock-in period. But to gain high returns on this investment option, it is wise to remain invested for a longer time.
Why Is It Secure To Invest In Long-Term ULIPs?
The following ULIP benefits will help you understand why investing in long-term ULIPs is secure.
- Relatively High Returns: With ULIPs, you get better returns because of its equity advantage. A part of your premiums is invested in funds of your choice. These funds can be equity funds, debt funds, or a combination of the two.
In case you have invested in equity-oriented funds, the maturity benefits will depend on the funds’ market performance. Also, ULIPs offer tax-free maturity benefits, thus making it a better investment option.
- Flexible: One of the unique benefits of ULIP is that it is flexible. It allows you (the investors) an opportunity to switch funds whenever they want. This means, in case you are unsatisfied with the performance of your investment portfolio, you can make the necessary changes.
You can switch between equity and debt funds, and vice versa. Fund allocation can be changed anytime during the policy tenure so that you can yield long-term benefits.
- Tax Benefits: ULIP tax benefits are another reason why you should invest in them. Under section 80C of the Income Tax Act, you can avail the tax benefits of up to INR 1.5 lakh on the premiums paid. Moreover, the maturity amount is exempted from tax as well under section 10(10D).
Basically, ULIP investments allow you to build your wealth over time. Hence, it is ideal for people looking to accomplish long-term financial goals. Investing in long-term ULIPs is secure, and one of the best investment instruments available in the market.