It’s a common enough conundrum, but one which is being solved by financially savvy Indians: how to gain entry into the markets with lower risk? In a world grappling with the repercussions of the COVID-19 pandemic that has claimed jobs and forced companies to fold around the world, it seems hardly worth the risk to bet on a fluctuating stock market. But what if you let your ULIP investments do the heavy lifting for your portfolio?
Recap: Why ULIPs make sense in a tense economyULIP plans, or Unit Linked Insurance Policies, are life insurance products that offer the dual benefit of life coverage and an entry into the capital markets. In many ways, ULIPs can upend conservative investment planning on its head with its array of benefits, from tax rebates (under Sec 80C of the IT Act, 1961) to investing in an array of asset classes. You may buy the life insurance plan online and get a lowdown on the plan tenure, its expected return rate, average NAVs over the last three years, and even the charge structure before you sign up.
While the Indian economy struggles to get to its feet from the backlash of the year 2020, it is certainly worth your while to consider ULIP policies for their propensity to create long term savings and allowing partial withdrawal against the corpus created (after 5 years have elapsed). Some companies also allow monthly income schemes so that you earn a guaranteed sum every month.
Mulling over buying a ULIP? Make the most of it
You might decide to test the waters by choosing a ULIP plan for your year 2021 investment planning – that’s a great choice, but you must do a few things first to maximise your long-term gains. Here is what you need to do:
Get the appropriate plan: There are several reputed insurance companies in India selling excellent ULIPs – but have you found the right one for yourself? The policy and its gains must be commensurate with your income profile, risk appetite, future financial goals, and investment horizon. Always, always focus on your financial goals when choosing the plan, whether it is a specific event such as a child’s wedding, or a slightly ambiguous one such as creating wealth for the future. The perfect plan helps you fulfil your goal and gets you there with minimum hiccups and the maximum returns on your investment. Check the plan’s investment ratio in both equity and debt funds to base your decision.
Go with a reputed insurance company: Though there are several good insurance companies in India, have you considered teaming up with the best one? A reputable insurer is upfront with all the pertinent information you need, apart from offering a suitably high life coverage amount and a simple claims settlement process. If you’re choosing the company based on the low premium amounts on their plans, then you’re probably not dwelling long enough on the overall range of benefits the plan offers, or if the company is offering a high coverage amount.
Look for plans that offer a ‘free switch’ in funds: The primary purpose of a ULIP plan is to invest your money in different asset classes as per your investment goal and risk appetite. This is where your fund manager can advise you on ‘switching funds’, which is a term that implies spreading the investment across different asset classes to diversify the portfolio. This diversification compensates loss from one asset class with the gains from another. When choosing life insurance online, look for funds that offer a ‘free switch’ – most plans in India do –a certain number of times a year. This allows a switch, without additional fees, between debt and equity funds in the ULIP plan while it is still active.
Think long term. The very premise of a life insurance plan is that it offers coverage for life, which means that it is based on a tenure exceeding 10 or even 15 years. On the other hand, ULIPs offer an entry into the markets. Again, a longer investment horizon works out splendidly in this case, since the potential risk on your investment evens out the longer you stay invested. This helps create savings and wealth – partial withdrawals are allowed only after the lock-in period of 5 years has elapsed – and your investment is automatically maximised through compounded returns.
The next step: Buying the plan
Your financial planner or adviser can list the best ULIP plans in India in view of your goals, risk appetite and amount you can invest for the policy premium. Look at the policy document carefully and ask all your questions to the insurer beforehand.
The right ULIP can create the kind of financial stability and savings that you have been looking for.
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