Ulips And Why They Make The Most Sense In Your Portfolio

As a new investor, you may want to try options that are low on risk but high on returns. The Unit Linked Insurance Plan (ULIP) is one such option, which is recommended for all investors wishing to build a balanced portfolio.

What is a ULIP plan?

A ULIP policy is an insurance product. It divides your payment towards it into two: One part pays the premium towards the policy, and the other is invested in high grade securities. The money keeps growing over a long period of time and creates a big corpus for the future. Since it is a life insurance product, it also helps your loved ones in your absence.

Why should I invest in a ULIP?

There are several reasons why you should invest in the best ULIP plan, such as:

* Suits all kinds of investors: The ULIP is aimed at all investors, whatever their appetite for risk. You can choose the securities you wish to invest in, which gives you flexibility to influence its outcome, and hence the outcome of your portfolio. If you are risk-averse, you can opt for balanced funds that divide your investment between equity and debt funds. If you have a higher risk appetite, you can choose equities which grow faster in a good market and lower risk over a longer time.

* There are no hidden charges: The ULIP policy does not have any hidden charges, as mandated by the IRDAI. As an investor, you are bound to pay processing charges and broker fees, and these are listed every time you make the next premium payment without any omissions. Thus, you know exactly what you are paying vis-à-vis the account performance. Besides, you get tax benefits on the ULIP premiums paid every year under Sec 80C of the Income Tax Act, 1961.

* Allows switching between funds as per market trends: Very few investment options in India offer the flexibility that ULIPs do. ULIP policies have few equals in terms of being able to switch between funds in the middle of the investment. If the market slows down, you can switch from debt to equity funds to minimise risk on the overall investment. Your investment manager can advise you on when to switch by monitoring the market closely. Most fund houses and insurers allow one free switch between funds every year, so you don’t lose any money on processing or switching charges. You get more opportunity to affect these switches on extending the ULIP term over 10 years to increase the corpus size.

* Grows money by compounding: You are free to exit the ULIP after the lock-in period of five years is over. By this time, you will have accumulated more money in the ULIP than you would by saving your money in a bank account or creating an FD. This happens with the power of compounding. However, it is advisable to stay the course and remain invested in the policy till it matures.