The income tax surely decreases the take-home salary amount. However, if an individual invests the money in the right investment option, then they can boost their income and fulfill the ultimate financial goals in the long-term.
The return of investments depends on various different factors like the maturity period, lock-in period, etc. This is the reason, the ULIP returns in a long-term period is maximum as compared to other investment options. With many different benefits offered by ULIP plans, here we have briefly discussed the reasons why ULIPs are considered as a long-term investment option.
1. The lock-in period
ULIP plans come with a minimum lock-in period of 5 years. However, in order to gain maximum return on investment, it is advised to stay invested in ULIP for a period of 10 years. ULIP plans help the investors to maintain a disciplined habit of investment with a long lock-in period. The lock-in period of the policy is computed from the date of policy initiation and the policyholder can pay the premium as a monthly or yearly mode.
2. Flexible investment option
ULIP plans provide flexibility by offering the advantage to switch between funds as per one’s own choice and requirement. The investors have an option to choose between income, equity, growth, and balanced fund according to the risk appetite of the individual. Different ULIP plans provides the different option of free switches and one can make up to a maximum of 4 free fund switches in a year. Moreover, one does not need to keep track on fund performance as the money invested in manages by the expert’s fund managers and the investment returns are offered to the individual as maturity benefit after the completion of the policy tenure.
3. ULIPs offer higher returns as compared to other investment options
As compared to other insurance products ULIP plans offer a higher return on investment as it provides the combined benefit of insurance cum investment. Under ULIPs, a part of the premium paid by the insurance holder is invested in various asset classes such as equity, debt, shares, etc. Moreover, along with the benefit of investment return, the plan also offered the advantage of tax benefit. With the advantage of free fund switches, the policyholder can not only create a financial cushion for future, but it can also provide financial security to their family as ULIP plans also offers the benefit of life cover.
4. Double benefit
Along with the benefit of life coverage and investment return, the ULIP plans offer the advantage of tax benefit. The premium paid towards ULIPs and the investment returns is tax exempted under section 80C and 10(10D) of Income Tax Act 1961.
5. Top-ups and premiums
The ULIP plan offers monthly and annual options of premium payment. However, in order to gain maximum return over a long-term period, it is advised that the investors should choose the monthly option of premium payment by going with SIP mode. Moreover, if one wants to gain surplus benefit then they can choose the option of top-ups that can be availed by paying some extra amount.
With the growing popularity of ULIP plans, the IRDA (Insurance Regulatory and Development Authority of India) has introduced new guidelines of Unit Linked Insurance Plans making it more investor-friendly. As compared to before, now ULIP plans offer low allocation charge, administration cost, and fund management cost. The reduction in these costs has greatly influenced the overall cost of ULIP and successively increased the returns in a long-term period. However, before investing in ULIP it is very important to have proper knowledge of ULIP funds and how it works.
Not everyone wants to invest in long-term investment option. However, if an individual wants to gain the benefit of both investment and savings in one plan, then ULIP is the right investment choice. As a long term investment plan, ULIP offers maximum return on investment and helps to create a financial cushion over a long-term period.
With the benefit of a long lock-in period and insurance coverage, ULIP returns best result in a long-term tenure of 10 years. By investing in ULIPs the investors can accumulate a fund for future and can achieve the ultimate financial goal of life.