What Is the Appeal of ULIPs in India?
The
Unit Trust of India was the first to develop ULIPs in India in 1971. So, what makes it so
appealing and popular in the eyes of Indian investors? Continue reading to
learn more. But first, what exactly is a ULIP? Let's go over the idea again briefly.
What exactly is a ULIP?
A
Unit-Linked Insurance Plan (ULIP)
provides both insurance and investing benefits. A ULIP, which is offered by insurance companies, requires you
to make regular premium payments to the insurer. In exchange, the insurer
provides you with life insurance and invests your premiums in market-linked
funds that you select at the time of purchase. You can choose either equity
funds or debt funds, or a combination of the two, depending on your needs and
requirements.
Reasons why ULIPs appeal to the
Indian psyche
A
Unit-Linked Insurance Plan gives you the opportunity to build long-term
market-linked wealth while also providing your family with much-needed
financial security if something were to happen to you. While this is a strong
explanation for the popularity of ULIPs among Indian investors, it is not the only one. Here's a
brief overview of some of the reasons.
1. They are one of the recommended
tools for achieving long-term objectives.
As
previously stated, a ULIP is
a long-term investment option. When given enough time, it works well.
Compounding, or the reinvestment of your profits to generate bigger returns, is
an important factor in developing market-linked wealth, which a ULIP exploits.
Furthermore,
by staying invested for an extended length of time, you can mitigate the
effects of market volatility and earn greater and more consistent returns. As a
result, ULIPs are
an excellent choice for achieving long-term goals such as home ownership or
your child's marriage.
2. They provide complete
flexibility.
Customizability
and total flexibility of choice are central to Unit-Linked Insurance Plans. You
can choose not only the death benefit sum assured and the tenure from the
available options but also how much to invest and the type of funds to invest
in.
For
example, if you are a youthful investor with a high-risk tolerance, you can
invest in equities funds. If you're an elderly investor with a low-risk
tolerance, you might prefer to invest in debt funds instead. A ULIP calculator can also
assist you in making investing selections.
3. They allow switching of funds
Another
important reason why ULIPs
are one of the best investment plans is the ability to switch funds at any time during the
plan's duration. Assume you selected to invest in equity funds when you
purchased the plan.
After
a few years, if your risk tolerance shifts or the market underperforms, you can
simply move to debt funds. And if you ever want to return to equity funds, you
can simply request a switch from debt to equity again.
4. They have tax advantages.
A
typical ULIP in
India provides various tax advantages. For example, you can deduct the premiums
you pay for the plan up to Rs. 1.5 lakhs per year under section 80C of the
Income Tax Act of 1961. That isn't everything. The plan's maturity benefits are
likewise tax-free, according to section 10(10D) of the Income Tax Act of 1961.
These deductions and exemptions are subject to the fulfilment of the Act's
conditions. It should be noted that if a ULIP policy or policies is issued on or after 1
February 2021 with an annual premium of Rs.2.50 lakhs or more, the gain from
such policy/policies is classified as capital gain and is taxed in the hands of
the recipient.
5. They offer a top-up facility
Finally,
one of the numerous reasons why Unit-Linked Insurance Plans are so popular in
India is their variety and flexibility. For example, if you have any unused
assets or have just obtained windfall earnings, you might choose to top up your
ULIP by paying a
lump sum additional premium. This additional premium contribution is used to
boost the fund's worth, boosting the likelihood of larger returns.
Conclusion
A
Unit-Linked Insurance Plan provides numerous advantages to the policyholder.
It's no surprise, then, that it's so popular in India. That being said, here's
something you should be aware of. Always use a ULIP calculator before purchasing a good ULIP plan in India that
meets your demands and requirements. This allows you to make better-educated
purchasing selections.
Labels: best investment plans, ulip
posted by Sushmita Sinha @ 12:01 AM
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