Though mutual funds are selling like hot cakes these days, they need a lot of research before going forward. On the other hand, ULIP plans save you from this effort along with offering the dual benefit of life insurance and wealth generation.
Take these scenarios into consideration. Mr X decides to invest in mutual funds. He is aiming at higher wealth creation goals. But, before start making investments, he has to first of all figure out his financial goals followed by his risk appetite, then he would have to finalize the tenure he should invest for, and the list continues. All in all, Mr X has his focus on a dream car, an exotic vacation (most probably on an international destination) and a plush sea-facing home that he had been dreaming for ages.
On the other hand, Mr Y has made a smart decision to invest in ULIP full form (Unit Linked Insurance Plans) and make the most of the power of compounding following a systematic and disciplined approach. All in all, he is certain about fulfilling all the aforementioned dreams, without losing his focus on financially securing his family on the financial front against unforeseen life situations.
Here are 5 points that make ULIPs a clear winner:
Insurance-cum-Investment – Both in One!
With ULIP plan, you get a wider horizon and the dual benefits of insurance-cum-investment in a single plan. This eventually means that you not only get to grow your capital but also get a comprehensive life cover at the same time. This life cover will financially protect your family in the case of unfortunate eventualities. For example, if you buy a ULIP plan with your spouse as your nominee (beneficiary), it will act as your spouse’s financial guardian in case something happens to you during the policy tenure.
Flexible and Safe Investment Plan
In ULIP plans, the investment funds in ULIP plans are made with a combination of both debt & equity funds in varying proportions keeping a certain objective in mind. This establishes ULIP as a flexible investment option.
This flexibility eventually allows the fund managers to invest your amount in an extensive array of funds that help you generate maximum returns. This feature also establishes ULIP plans as a safer and more reliable investment option.
Flexible Switching Options
ULIP plans provide switching options between different funds to make the most of the market conditions throughout the investment cycle. This helps you further safeguard your ULIP investments against risks of capital market and boost the performance of your investments.
Affordable Fund Management Charges
In the beginning, say until 2010, ULIP plans had higher deductible charges or there was a higher deduction of units from the policyholder’s account. These expenses are a part of premium redirection, fund management, fund allocation and switches, policy administrations, mortality charges and other miscellaneous charges.
However, these ULIP charges have been drastically reduced, due to which ULIPs are now established as one of the most affordable and lucrative investment options.
Disciplined Saving habits with Fixed Lock-In Period
As a norm, ULIP plans have a minimum lock-in period of 5 years which ensures a disciplined saving habit. This custom encourages ULIP investors to invest a pre-fixed amount every month, which otherwise seems like a challenge for the individuals, considering the ever-rising expenses and inflation rate.
Not only that, but the lock-in period also prevents the policyholders from withdrawing any money from the before completing the 5 years period; thus, enabling them to build a decent financial corpus over the period.
The special feature of Loyalty Units in ULIPs makes the investors receive additional units on their investments if they maintain a consistent record of making timely premium payments over a certain long period of time.
Over to You:
The guidelines issued by IRDA (Insurance Regulatory and Development Authority of India) have made the ULIPs as a well-accepted and investor-friendly investment entity than they were at the beginning of their introduction to the market. Different costs associated with ULIPs such as like administration charges, premium allocation charges, fund management charges, and surrender charges have been drastically reduced.
All in all, ULIP plans can act great wealth generation tools for long term goals because of the vast fund diversity they offer. These are ideal for individuals who want to start early to reap out the equity benefits.