As an individual, you may have specific life goals that would be distinct from others. Your goals could be buying a retirement home, sending your kids abroad for education, accumulating a large corpus for your grandkids, starting a new business venture after retirement, etc. You can meet these goals by meticulously planning your investments and building wealth through long-term investment products.
One such long-term investment option that has gained immense popularity among Indian investors is ULIP (Unit Linked Insurance Plan). It is primarily a life insurance policy that offers the dual benefits of life insurance protection and wealth creation for accomplishing long-term goals.
When you pay the premium for ULIP, the insurance company uses a specific part of the amount for insurance coverage. It invests the rest in money-linked products like debt and mutual funds, government bonds, balanced funds, etc. All these investment options offer valuable returns in the long run.
Let us understand how the ULIP plan can help you accomplish your long-term goals.
Inculcates investment discipline
One of the note-worthy features of ULIP is that it comes with a 5-year lock-in period. This means you cannot withdraw funds from your corpus until the end of five years. And every time you pay the premium, a part of the amount is invested in different funds of your choice. Thus, it helps you stay disciplined with your investment and committed to your long-term goals.
Many experts recommend staying invested in ULIP for ten years or more to build a sizeable corps and achieve your goals.
Long-term wealth building
When you purchase the ULIP plan, you have the flexibility to choose between equity and debt funds based on your risk tolerance level. By taking advantage of the market movement, you can invest in equity funds and increase your chances of getting higher returns over time.
Another benefit of investing in equity instruments is that you get inflation-adjusted returns and can build a large corpus quickly. Historically, ULIPs have consistently provided returns in the range of 10% to 15% over an investment period of 10 years or more. However, historical returns may not guarantee returns in the future.
The power of compounding simply means an asset generates earnings, and those earnings produce more profits. As an investor, you must be aware of the fact that the funds you invest in may not generate returns every year, and therefore, staying invested in the long run gives you better chances of getting valuable returns through the power of compounding. It allows the funds’ NAV or net asset value to grow and mitigate market volatility.
Helps you get tax benefits
Another significant benefit of investing in ULIP is that it helps you get tax benefits throughout the policy tenure or as long as you pay the premium. It is one of the most tax-efficient investment instruments. The premium you pay for the policy is eligible for deduction under Section 80C of the Indian Income Tax Act.
Besides, the maturity proceeds you get at the end of the policy tenure are fully tax-exempt under Section 10D of the IT Act. In the event of your demise during the policy period, the death benefits your family may receive from the insurance company are also tax-free.
Thus, with such incredible benefits, ULIPs are a feasible investment option to achieve your long-term goals.