5 Reasons You Simply Cannot Avoid Unit Linked Insurance Plans

 

Unit linked insurance plans are a very good option and have become quite popular these days. The benefits are many, and it is perhaps a very important form of investment to think about. The first thing to understand is what exactly is an unit-linked insurance plan. Essentially when you invest in such a plan, the insurance company uses part of the premium in shares, bonds etc. The balance amount provides the insurance cover. Since insurance companies have on their payroll fund managers, the investor is spared the need of managing the investments. The experts within the company handle these for the investor. Depending on your instructions, the insurance company will deploy the funds. The great thing is that you can switch from ne form of investment to another if you so desire. However, keep in mind that the lock-in period is now 5 years. But in such investments, the benefits only accrue over a period of time.

Benefits of Unit Linked Insurance Plans.

The first benefit is that the plan offers a life cover. This is useful as the cover protects the investor in case of his untimely death. His family is protected financially. At the same time, the investment portion is working to generate money. 

The second benefit is Income Tax benefits. Under this plan, premiums paid are exempt from tax under Section 80C. In addition, the returns under the policy on maturity are also exempt from tax under Section 10 (10D) under the Income Tax act. There is thus a dual benefit. 

Financing long term goals is another advantage of this plan. If the goal is to buy a house after a certain time, this plan works to ensure that the funds are available and tax-free at that time. Therefore, investing in a unit-linked insurance plan is the best way forward. Considering the current interest rates being offered, investing in a fixed deposit with the bank does not bring good returns. The unit-linked insurance offers a larger return, although over a period of time. However, all investments generally yield results over a period of time. And the unit-linked insurance plan works in the same way. The planning for this needs to be a long term plan. It is possible to exit the plan after the lock-in period 5 years, but the gains are not as much as a longer time investment, say for 10 years minimum. 

Switching of investment instruments to be used by the insurance company is also a great benefit. Normally the insurance companies allow a number switches free of cost. You, as an investor, are free to ask the insurance company to switch the fund from equity to debt or vice versa. The company will act on your request. If you are someone who understands the market, this is extremely useful. However, insurance companies have god fund managers who handle such things. 

However, as for all investments, your personal goal is important. If your goal is wealth creation, then there is no better way than unit-linked insurance plans. The advantage is that it is possible to compare plans offered by different insurance companies and opt for the one which best suits you. Check the small print to see what sort of expenses are involved, premium payments, and the performance of this plan over the past. It is also necessary to investigate the kind of funds that the plan invests in and the kind of performance results these investments have given investors. This way, you can invest in the plan which you find suits your needs. The risk factor also needs to be examined before deciding to invest. 

Generally, unit-linked insurance funds are invested in the following manner - 

●      In Equity funds, the risk is higher, but returns are higher.

●      Balanced funds - in this case, the funds are divided between equity and debt markets to minimise the risk.

●      Debt funds - this investment carries a lower risk and is sometimes done at the request of the investor. Returns, however, are lower. 

However, there are 2 types of unit-linked insurance plans which must be understood. The first type pays the fund value upon the death of the investor, which is generally greater than the sum assured. The second type just pays the sum assured to the nominees. There is no added fund value. 

ULIP plan also have charges that must be considered when selecting the plan. There are Mortality Charges for the lif cover offered. And this charge depends on factors like age, sum assured etc. These charges are deducted on a monthly basis. Check to see what the size of the charge is.

 There is a fund management charge, which is essentially the charge that the company levies for management of the funds and is normally deducted before arriving at the NAV figure. 

Then there are the charges for switching the investment from debt to equity. Normally, some switching requests are free, but the company charges for each request after that.

 Partial withdrawals also attract charges. Therefore it is best to avoid such withdrawals if possible. 

The benefit of a unit-linked investment plan is that it offers a life cover and the advantage of growing your funds using the built-in investment system.

What are SIPs, and Do They Add Value to Your Portfolio?

 To build a new habit, you must find a way to include it in your daily routine. Whether it is about eating healthy, exercising, or saving, this is the golden rule that can take you closer to your goals. When it comes to investing, there is nothing better than SIPs. 

So, what is a SIP, and how can it help you build a strong portfolio? Let us find the answers to this in this article.

What is a SIP?

Many individuals confuse SIPs for mutual funds. A Systematic Investment Plan (SIP) is simply a tool to invest regularly in mutual funds. When you invest in the SIP of your choice, a pre-decided amount gets deducted from your bank every month. Typically, SIPs invest your money in equity funds.

Apart from helping you develop financial discipline; a SIP also helps you invest in your desired mutual funds in a staggered manner. It is ideal for salaried individuals looking for a convenient option to invest in mutual funds and build a portfolio.

How Do SIPs Work?

Mutual funds are investment instruments that invest your money in securities like equities, debt, or bonds. Asset Management Companies (AMC) manage mutual funds that are structured to offer the best returns to investors. 

When you invest in them, you buy units of the mutual fund that equals the value of your investment. When you take the SIP route, you buy units every month. You can use a sip calculator mutual fund for more accurate investment information.

How Can a SIP Help Build a Strong Portfolio?

Several individuals may want to invest in mutual funds and accumulate wealth in the long run. However, they may not have the required capital to do a lump sum. For such individuals, SIPs are convenient as you can invest little amounts regularly and increase the value of your portfolio. Moreover, if you want to invest in multiple funds and benefit from different AMCs, SIPs are a better option as they are easier on the pocket.

Another big advantage of SIPs is that you can benefit from both bullish and bearish stock markets. If you were to invest a lump sum, you would have to time it to benefit from a falling market. Considering the volatile nature of the stock market, you can never be sure when is an appropriate time to invest.

However, SIPs allow you to buy more units when the market is down. It helps in averaging out your investment to ensure that you get optimum returns on your investment. When the market is bullish, the value of your portfolio increases, thereby enhancing the returns. Apart from this, you can also enjoy the power of compounding, which can exacerbate the value of your portfolio by manifolds in the long run.

If you are looking for a tax-saving option, SIPs can help you with that as well. ELSS mutual funds are schemes that give you tax deductions as per Section 80C of the Income Tax Act. You can invest in ELSS taking the SIP route to save tax and invest that money for the future.

You also get the flexibility to change your SIP anytime you wish to. If you receive a windfall or get an increment at work, you can increase the amount of your SIP and enhance your portfolio.

Finally, if you do not want to lock your money, you get that option too. With SIPs, you can withdraw your investment anytime you need the money. 

To Sum up

SIP investment is a commitment. If you struggle to maintain and sustain a saving discipline, this is the way forward for you. The host of benefits it offers the investors can help you fulfil your objectives in the long run. For more information or to invest in a SIP today, you can visit PGIM Mutual Fund.

Do You Want Your Money To Grow? Then Invest In Guaranteed Income Plans

 

A worry-free retired life is something everyone dreams of. This becomes possible only with a stable source of revenue that does not fluctuate with the market. Banks and financial institutions offer numerous saving schemes and insurance plans. But they don’t often provide the security one experiences while earning on one’s own.

Getting a plan that matches all your requirements and offering you the security you need in retired life may appear confusing. You have to consider numerous factors like premium, returns, death benefits, etc. The smart choice here is to explore your options in guaranteed income plans.

Such plans ensure a guaranteed income for your family after your retirement or your untimely death.

What are guaranteed income plans?

Guaranteed income plans are a non-participating scheme that offers you a regular income. You pay a fixed amount every year as a premium for an agreed-upon number of years per the scheme. You can decide your age based on your financial strength and age. The insurer determines your premium accordingly. Upon maturity of the plan, you begin receiving a specified amount like a regular salary. The number of years and the amount will depend on the type of plan you chose, the premium you paid and the amount you agreed upon.

Explore your options among guaranteed income plans in India and enjoy the following benefits:

It reduces the risk of returns

People about to retire always have their own apprehensions towards making high-risk investments. They often receive recommendations to invest in the schemes like life insurance policies. These ensure a return for their families in the instance of their untimely death. If you invest in a guaranteed income plan, you don’t have to worry about this. The scheme minimizes the loss of your income when you retire.

The benefit upon the untimely death

In the instance of the unfortunate death of the policy-holder during the insurance tenure, the insured's nominee receives the basic amount promised in the contract. This is in addition to other bonuses the person may have saved. The payout is made, in general, for 15 years. In any other instance, it will continue as per the term mentioned in your insurance policy. If death happens after the end of the premium-paying tenure, the nominee receives the sum assured along with any other benefit as per the contract.

Tax benefits

Your investment here is eligible for tax exemption under Section 80(C) annually. Upon maturity of your policy, your returns are exempt as per Section 10(10D). Know that these exemptions are made available based on the terms and conditions described thereof.

Periodic payments after the first year of premium

You start receiving a fixed amount from the start of the second year of your insurance term. You can determine the interval. The payout remains same through the term of the policy. This provides you with a source of extra income. And you can take care of the small expenses that exceed your monthly budget.

Eligibility requirements

Guaranteed income plans are reserved for the salaried. The minimum age here is 18, and the maximum is 50. And when it comes to insurance tenure, the minimum is 34, and the maximum is 75.

Tips to maximize your returns

Do the following to maximize your returns from your guaranteed income investment scheme:

Repay all your debts: Availing a loan is a breeze for a salaried individual. But debts affect your savings. Repay your debts at the earliest to maximize your returns from your insurance policy.

Plan your retirement in advance: Calculate the expenses you expect during your retirement. Have a clear understanding of your health at the time. It will give you an idea of how much you should aim to save to lead a tension-free life when you grow old.

Prepare for an unexpected emergency: Anything can happen at any time. Having an emergency fund helps you handle it without having to worry about the loss of income it may cause. In a general scenario, it should be equal to the salary of five or six months.

Research and choose from among the numerous guaranteed insurance plans available. You will never regret your choice. See to it that you get it from a reputed insurer.

Everything You Need to Know about Small-Cap Funds

 

When categorized based on market capitalization, equity funds fall into one of the three types – large-cap, mid-cap, and small-cap.

Small-cap equity funds involve putting money in small-cap companies with a lot of room for growth. This means you can expect exceptional return potential but also be ready to face a higher level of risk.

In this guide to small-cap funds, we try to understand what they are, how they work, who should invest in them, and what benefits and features they offer. For a further deep-dive on the nuances of small-cap funds, please refer to this guide from PGIM.

What Are Small-Cap Funds?

As mentioned earlier, small-cap funds invest in stocks of publicly traded companies that have a market capitalization of Rs. 5000 crore or less.

On stock indices, small-cap companies often rank below 250 on the list by market cap. These are small and relatively new ventures focused mostly on aggressive expansion.

Small-cap funds try to leverage the growth potential of these companies by putting money in them when their capitalization is still small. These funds have a higher potential for returns as compared to mid and large-cap funds. However, such companies are more likely to incur losses during adverse market conditions.

This means, while small-cap funds offer outstanding return potential, they have a higher risk level than mid and large-cap funds. Most fund managers invest about 65%-90% of the portfolio in small-cap stocks.

Features of Small-Cap Funds

Here are the primary features of small-cap mutual funds.

Risk-reward ratio – Small-cap funds carry a higher risk than mid and large-cap funds. When the market does not perform well, these funds suffer a lot because they are not well-established and can move out of business.

However, these make an excellent option for those who can tolerate high risk and want to benefit from aggressive growth.

Returns – This small category has performed really well in the market in the past few years and has attracted a large number of investors.

Small-cap funds are known to generate substantial returns and outperform other funds over the long term.

Asset allocation – According to the rules of the SEC (Securities & Exchange Board of India), small-cap funds must allocate at least 65% of the investment portfolio to small-cap stocks.

Taxability – Short-term capital gains earned on holding these funds for less than a year are taxed at 15% regardless of the realized amount. A tax of 10% is applicable on gains over Rs. 1 lakh made from holding these funds for over a year.

Benefits of Small-Cap Funds

Here are some of the primary reasons investors prefer small-cap funds.

High Returns Potential – Small-cap companies generally have an aggressive growth and expansion strategy that can significantly increase their market cap over the long term. This means the potential for returns is quite high in small-cap funds.

Many small-cap funds have averaged a return of 60% in 2021, with a few providing returns in excess of 100% during the year.

Diversification – The best small-cap funds typically invest in companies with a huge potential to generate returns.

Managers consider researching the market to put money in companies across sectors, adding a lot of diversifications to your portfolio.

Outperforming Other Funds – If mid-cap and large-cap funds don’t deliver expected returns, small-cap funds are a great inclusion in the portfolio. As they tend to offer better gains, they balance your portfolio.

Who Should Invest in Small-Cap Funds?

Small-cap funds are more suitable for those with a long-term investment horizon. Such funds suffer a lot when the market dips.

So, to allow the funds to generate returns as per your expectations, you should stay invested for a longer term. Moreover, these funds are highly volatile and risky, so they are an ideal investment for those who have good risk tolerance.

Small-cap funds are good options for investors with long-term investment goals like retirement planning, children's education, or medium-term debt repayment. Investors can put money in small-cap funds in one of the two ways – lump sum and SIP (Systematic Investment Plan).

In the first route, you can invest the total amount in one go. SIP allows investors to allocate funds to a scheme on a monthly or quarterly basis.

Now that you know what small-cap funds are, how they work, their features and benefits, you can decide whether you should invest in them or not, depending on your goals and risk tolerance levels.   

Have You Heard About The Best Saving Investment Plan? Here Are The Details

 

Each investor wants to gain the maximum financial return without risking the loss of capital. Today, earning money is not sufficient to reach our financial goals in this day and age, which is why investing in the right investment plan is crucial. Growth is imperative to achieving your financial goals. If your money is just in the bank, you're wasting your chances of reaching your financial goals. Investing will help you beat inflation and reach your financial goals, as well as help you maintain your financial security. 

By investing in stocks, equities, mutual funds, and fixed deposits, you can prevent money from sitting idle in your bank account. There are many investment plans to choose from in the market, which could make it challenging to choose the right one. Some types of saving plans are listed below that can help you grow savings. 

Equity: As far as investing in stocks is concerned, it might not always be the most preferred choice among people. In addition, picking the right stock is part of the art of investing in stocks. Investing in stocks also involves ten other important aspects, such as timing. Comparing inflation-adjusted equity with other types of assets, equity delivers a high level of performance over the long term. Similarly, there is a high risk of losing all the capital unless the investor takes the precaution of stop-loss to reduce the loss. When a stop-loss order is in place, an advance order is placed to sell the order at a certain price. 

Public Provident Fund: For generations, public provident funds have been a popular investment choice for Indians. There are multiple reasons behind its popularity. The main reason for the popularity of PPFs is that they are considered safe investment options. There is an attractive interest rate of 8% PA on the invested amount, and it can be claimed directly under Section 80C to reduce your taxes. In addition to this, the investment interest generated is also exempt from tax. 

Property: Houses that you live in should never be considered investments, as they are for personal consumption. It is possible to invest in a second property if it is not intended for living in. The location of your property determines both the value and rental income of your property in addition to its value. Rentals and capital appreciation are two ways that real estate investments deliver returns. 

Unit Linked Investment Plans: As the name suggests, ULIPs are investment plans in which the money paid by the investor as a premium is channelled into the stock market. Investments in ULIPs are made up of different funds. Each investor who invests in the best investments receives units of the fund. The correlation between the fund value of the investment and the premium put in by investors determines the value of these investments. 

Sukanya Samriddhi Yojana: In the Sukanya Samriddhi Yojana, girls and children between the ages of 10 and 15 can save for their future. There is a maximum of two accounts per parent or legal guardian for two girl children. When the account reaches maturity, it is either opened after 21 years or if the girl child marries after attaining age 18 years. When the child reaches 18 years of age, a premature withdrawal of up to 50% of investment can be done even if she doesn't get married. 

Debt Mutual Funds: Investors who wish to study returns should consider Debt mutual funds. Equities are less volatile than mutual funds. Therefore, the risk is lower. On the other hand, debt mutual funds generally invest in fixed-income securities. Government securities, corporate bonds, treasury bills, commercial paper, and money market instruments fall into this category. Despite this, it is not risk-free; it is subject to certain risks, such as interest rate increases and credit risk. Therefore, a detailed study is needed before an investor decides on a saving investment plan. 

The product you want to invest in must match your risk profile when selecting an investment avenue. A few saving investment plans carry high risks but are expected to produce higher inflation-adjusted returns than other asset classes over the long run. While, others carry low risk but higher returns over the long term.

How You Can Reach Your Financial Goals through SIPs

 

A Systematic Investment Plan or a SIP allows investors to invest a fixed amount every month in a mutual fund. This helps average out the purchase price, thus protecting them from investing a large amount at a high point in the market.

It is quite a popular concept among investors who use SIP calculators for ease to calculate how long it would take a SIP of a given amount to reach a specific financial goal. For instance, if your aim is to accumulate Rs 1 crore in 10 years, you need a SIP of ₹45,000 per month at a 12% return.

How Can You Reach Your Financial Goals through SIPs?

Investing in mutual funds SIPs is one of the ideal ways to invest and get decent returns. Using a good goal-based SIP calculator, you can get an approximate estimate of the amount that you would regularly require to invest to meet your financial goals.

Whether you're planning for a child's education, retirement, or purchasing an expensive asset such as a house, you can make use of a sip interest calculator that can help you get a rough estimate of the total amount of money you need to keep aside to achieve your goals within a defined period.

Let's understand this better with an example-

Mr. A is willing to invest around Rs. 50,000 a month in mutual fund SIPs and plans to gradually increase the amount by 5% every year to fulfill his goal of buying a second house by creating a total corpus of Rs 5 crore in the next 15 years.  

So, how can he do this by investing in SIPs?

First, let's understand how much corpus Mr. A can create by investing in a proposed SIP of Rs. 50,000 a month with an increase of 5% every year.

In this case, let's assume an average return of 15%- 16% on his equity mutual fund investments via SIP (based on the past returns from the mutual fund SIPs over the past few years). With this run rate, the amount of corpus Mr. A would create roughly is Rs. 3.50 crores which will not help him achieve his desired target. To be able to achieve his target of Rs. 5 crores, he has two choices-

a. Increase his stipulated amount for SIP to Rs. 60,000/- from Rs. 50,000/-  

b. Increase the annual percentage rise in the SIP figure to 10% from the initially planned 5%. 

The best strategy here would be to invest SIPs in more selected mid-caps funds with a combination of some small and large-cap schemes.

How Does the SIP Calculator Work Here?

The SIP calculator primarily works by using some important data to compute your SIP investment that you would need to make regularly. The most important steps that you need to follow while using the SIP interest calculator include-

• Enter the target amount that you would need to complete your financial goal.
• Enter the total number of years in which you would need to complete your goal setting.
• Enter the return rate expected.

Here is an example to understand the working of a sip calculator mutual fund in more detail-

Mr. X has a target amount of Rs 60 lakhs in the next ten years at an expected return rate of 12%. As soon he enters these details in the sip interest calculator, it will display the SIP amount (and lump sum amount) that Mr. X will have to invest to meet his desired financial goals.

Benefits of Using SIP Calculator

Some of the key benefits of using the goal-based SIP calculator include-

• Helps mutual fund investors strategically and efficiently plan their investments.
• Simple to use where the investor only needs to provide the financial goal details, and the calculator will automatically display the investment tenure and the results.
• The SIP calculator is an excellent tool that simplifies complex mutual fund investment calculations, thus saving a great deal of time.
• Free to use and can be used online anytime, anywhere, thus simplifying the overall investment process for existing and first-time investors.

To Conclude

PGIM India Mutual Fund offers an easy-to-use SIP calculator to help you plan for your life goals with great ease. All you need to do is feed your input in the SIP interest calculator, and based on your inputs, the calculator informs you how much amount you need to invest per month to be able to achieve your financial goals.

What Kind Of Insurance Should I Consider For Retirement?

 

Financial planning for retirement is an important step for your well-being during the sunset years of your life. Old age brings a set of unique problems such as health issues and the inability to work. You need a regular income to support yourself. On top of this, you may have a mortgage to pay off or meet your children's education expenses.

How can you manage so many expenses when you are not able to earn a living? The answer lies in having proper retirement plans. You should work out and follow a retirement plan that foresees all these scenarios.

Plan in Advance

For a financially comfortable retirement, you need to plan for it at least 15 years in advance. It takes many years of small savings to accumulate a reasonable sum of money. Also, you need to pay an insurance premium every month for ten or more years to see it mature. You can receive this money either as a lump sum or as a pension plan.

Assess Your Retirement Needs

Every person has their unique set of retirement requirements. For example, one may have to pay off the mortgage while someone else may have to pay for children’s education or own medical expenses. Having a car can mean many conveniences, but you need to pay for its maintenance and insurance. Given this, you need to evaluate your retirement needs and make appropriate financial plans to address them.

However, everyone needs a set of insurance plans and at least one pension plan for their retirement. Here are common insurance and pension plans that should make your retirement planning comprehensive and effective. 

Insurance Plans:

1. Life insurance

A pure life insurance policy is one of the most basic retirement plans. Under this, you pay a fixed amount every month towards your life insurance. In the event of your death during the policy period, your chosen beneficiaries will receive the assured amount. You don’t get any money at the end of maturity.  

2. Whole life insurance

A whole life insurance plan covers the entire life, and the benefits are paid to the chosen beneficiaries after the death of the insured. However, this plan has a savings component where the funds build up and can be accessed by the policyholder during his lifetime.

3. Health insurance

Hospital and medicine bills can add up to a big sum, particularly in old age when you consistently have one health issue after the other. Health insurance can absorb much of the financial shock you receive on this count. A health insurance policy after the age of 50 can cost a little more than usual. However, having a health insurance plan can give you a lot of financial protection and peace of mind.

4. Disability coverage

Workplace hazards are something most of us don’t take seriously. But they are real and rampant. An injury can often leave you out of work for weeks and months and, in some cases, forever. You should subscribe to a long-term disability insurance cover as part of your retirement plan. It will ensure you receive a regular income during the period you are out of the job due to an injury.

5. Auto insurance

Your car is big support during your old age as it keeps you mobile and lets you finish outside work with convenience. But the car needs a proper insurance cover to meet financial liabilities in the event of an accident or write-off. If you have a car, you should also have auto insurance.

Pension Plans 

Your retirement plans are not complete until you have subscribed to a pension scheme. It will ensure you have a regular income to meet your day-to-day expenses. There are many pension plans, and you can choose one or several of them as per your need and resources. Here are a few of them:

1. Term insurance

You can invest an amount in term insurance and start receiving a regular monthly income. It’s an investment plan that pays like a pension scheme. Under this, you invest a sum of money for a fixed term. Depending on the amount, you receive a monthly, quarterly, or annual payout while the principal amount stays intact and is paid back to you at the end of the term. There can be different types of term insurance plans depending on how the insurance company further invests your money.

2. National Pension Plans

To give every citizen an option to have a regular pension, the Indian government launched the National Pension System (NPS) in 2004. Any Indian between 18 to 65 years can subscribe to a pension fund and make regular contributions to this fund. When leaving the NPS, the subscriber can choose the accumulated fund to be partly paid as a lump sum amount and part of it purchase annuity/pension plan from empanelled life insurance companies. It’s simple, low-cost, flexible, and portable.

3. Endowment plan

One of the most popular retirement schemes, endowment plans, offers life insurance coverage and pays a lump sum at the plan's maturity. Like term insurance, an endowment plan can be of different types depending on where the money is invested.

4.   Money-back plans

In this type of investment, policyholders receive regular payouts while a lump sum amount with applicable bonuses is paid at the maturity of the policy. The investment can be one-time or through monthly premiums.    

Summing Up

A pension scheme should be one of the most important items on the list of your retirement plans. You can choose from a number of term plans for retirement that offer both annuity and lump-sum amounts.

Planning your retirement requirements and buying appropriate investment and pension schemes well in time is crucial for a financially comfortable retirement life. Given the importance of a sound retirement plan, you should not shy away from taking the help of an independent financial advisor to prepare a sound retirement plan for you. You can also visit Edelweiss Tokio to have a look at their retirement plans that will leave you stress-free about the future.