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5 Things to Consider Before Investing in ULIPs

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5 Things to Consider Before Investing in ULIPs

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Financial planning is essential for any individual to secure the family’s monetary future. Therefore, it becomes important to invest in the right financial product that can help you grow your money during the long term. As there are numerous investment instruments available in the market, searching for an ideal option is quite difficult.

Bank fixed deposits(FDs), Public Provident Fund(PPF), government securities, mutual funds, equities, and Unit-Linked Insurance Plans (ULIPs) are a few investment avenues that can eventually grow your investments. Investing in a ULIP can be a suitable alternative, as it offers better returns in the long run when compared to other financial instruments. Many people are curious to know what is ULIP.

ULIP is a one-of-its-kind insurance policy that offers a combination of life insurance and investment. Here, you can invest in equity, debt, or balanced funds based on your financial aspirations and risk-bearing appetite.

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So, if you are keen on investing your funds in a ULIP policy, here are a few factors that you should consider.

  • Invest with a long-term perspective

You must invest in ULIP only if you wish to stay invested for a long period. ULIPs have a mandatory lock-in period of five years. It allows you to develop a habit of savings and make the most of the market movement. Plus, it gives you a chance to recover the losses that you may have incurred due to the short-term market volatility. Besides this, if you remain invested in ULIP for a minimum of 10-15 years, you can benefit from the power of compounding.

  • Donot invest only because of tax benefits

You can claim a tax deduction on the amount you pay towards the premium of your ULIP policy under Section 80C of the Income Tax Act, 1961. The maximum amount that you can claim is set at INR 1.5 lakh per annum. While it is one of the major ULIP benefits, you should notinvest in this financial product only for the sake of saving tax. This product is perfect for investors who want to grow their wealth as well as save on taxes.

  • Check the charges associated with ULIPs

Before investing in ULIP, learn about all the costs related to it. There are a variety of charges like premium allocation charges, administration charges, fund management charges, mortality charges, and discontinuation charges, among others. Knowing about the various expenses will give you a better understanding of how a part of the premium is invested in various funds.

  • Choose the sum assured based on your financial goals

One of the best things about ULIP is that it provides life cover along with the investment component. Therefore, you need to ascertain the sum assured as per your financial goals and budget. The sum assured is the amount that your nomineewill receive in case of an unfortunate incident. If you want a higher sum assured, the premium of your ULIP policy will be high.

  • Invest as per your risk-taking appetite

One of the best ULIP benefits is that it allowsyou to invest in a type of fund based on your risk horizon. You can invest in equity funds if you can take high risks. If you are a risk-averse investor, invest in a debt fund.If you can take moderate risks, consider investing in a combination of equity and debt funds.

ULIP plans are one of the best wealth-generation products available in the market today. Secure your family’s financial well-being and fulfill their economic aspirations in the long run by investingin the appropriate ULIP.