Choosing where to invest your long-term savings can be a daunting task. While traditional investment options may no longer offer adequate returns, the new age Unit Linked Insurance Plan (ULIP) generates attractive returns from today’s challenging market volatility. The returns from a ULIP Policy depend on your choice of funds and your risk appetite.
Before we dive right into the ULIP fund options, let’s begin by first understanding what a ULIP Policy is:
A dual investment product like a ULIP product is combined with the benefits of investment and insurance under a single plan. Moreover, it is beneficial to meet your long-term financial goals with ease. Whether you want to plan a dream wedding or plan on having kids, you can depend on a ULIP investment for accomplishing your needs. As a policyholder, you can select from the wide range of ULIP funds based on your risk appetite.
What are the different types of ULIP funds?
- Equity funds
These types of ULIP funds are majorly invested in company stocks and equities. Since these are risky, it is recommended for investors with a high risk appetite. The main objective of equity funds is capital appreciation. In simple term, the higher the risk, the higher the reward gained in return.
- Debt funds
These types of ULIP funds are invested in fixed income government securities such as corporate bonds and treasury bills. The nature of debt funds is relatively less risky than equity funds. It ranges from medium to low risk.
- Balanced funds
This type of ULIP fund is a blend of equity and debt funds. Your whole invested amount would be distributed between high risk equities like company stocks and low risk or fixed income investments. An investment in a balanced fund would temper your risk factor between high to low.
- Cash funds
These types of ULIP funds are also known as money market funds or liquid funds. When you invest in cash funds, your investments would be channeled towards low risk market instruments, bank deposits, commercial papers, and so on. The returns received from cash funds are typically low.
A ULIP investment would offer you a diversified portfolio. Although there are multiple benefits of ULIP funds, let’s take a look at these top four important benefits of investing in ULIP funds:
- Disciplined savings habit
A ULIP policy can inculcate a disciplined savings habit in you. Moreover, you can develop a corpus to meet your future needs step by step over the due course of the ULIP Plan.
- Freedom of choice
You can select the fund based on your preference to make the most of it.
- Switching option
Since there are multiple funds as mentioned above, you are free to switch between those funds options if you are not satisfied with the returns.
- Tax savings benefit
A ULIP policy allows tax saving benefits on the premium and the maturity proceeds. Under Section 80C of the Income Tax Act, 1961, you can claim a deduction of Rs. 1,50,000 on taxable income. The maturity payout is tax-free as per Section 10(10D) of the Income Tax Act, 1961.
To sum up, a ULIP investment offers flexibility to every buyer. You can not only select the fund but also switch between these funds based on your financial goals, preferences, and risk appetite. You should carefully analyze the type of you want to choose and plan your future accordingly.