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.