Unit-linked insurance plans offer the dual benefits of insurance coverage and investment opportunity. ULIPs offer a choice of funds for the investor to choose from, based on his/her risk appetite. ULIPs offer tax advantages at the point of purchase, at maturity and at the time of making partial withdrawals, subject to certain conditions.
ULIPs are managed by professional fund managers who try to maximise the returns when the markets are bullish and minimise the risk when the markets are bearish. Very often, people tend to compare ULIPs with mutual funds, forgetting the fact that ULIP is primarily an insurance product that offers financial protection in case of unforeseen contingencies. Here is a full explanation on ULIP vs SIP, which should be take into consideration.
ULIPs vs. SIP
ULIP premiums can be paid monthly, quarterly or annually. Many investors use the SIP route to invest in mutual funds, thereby reducing the risk of market fluctuations. Both these products have their own unique advantages. SIPs encourage financial discipline with a commitment to invest a fixed amount every month. SIPs can be started with very small amounts, thereby encouraging small savings. SIPs offer protection against market volatility.
ULIPs offer several advantages to the investor and is rated as one of the best products for long term investment:
ULIPs provide the dual benefits of insurance and investment. It is a product meant for providing protection to the family, along with the opportunity to earn market-linked returns. While your investments generate returns for you, the product also offers financial security in case of unforeseen eventualities.
ULIPS sometimes come with optional riders such as critical illness cover and permanent disability cover that offer additional coverage in case of unforeseen events.
ULIPs offer a variety of funds for the investor to choose from – equity funds, balanced funds, money market funds and so on. The investor can analyse the funds and their objectives and choose one that suits his/her investment philosophy and risk appetite.
With the re-introduction of the long term capital gains tax, mutual funds have lost some of their appeal. If it comes to advantages of ULIP then it offers tax benefits at every stage – when you buy the ULIP, you can claim tax deduction u/s 80C. Partial withdrawals are permitted after 5 years and is not taxable. The maturity benefit is not taxable as per Section 10 (10D), provided the product comes with the requisite insurance coverage as prescribed.
Return on Investment
ULIPs can generate good return on investment in the long run. Most ULIP funds in India have generated good returns in the equity category, especially in the large cap and mid cap segments. The balanced funds have also given good returns, almost as much as mutual funds have yielded.
With these, there are several other advantages that ULIP can offer you. These are flexibility, transparency and goal based savings. Unlike traditional insurance products, ULIPs can help you beat inflation and create a considerable amount of savings, in order to meet the long term goals of your family. It also provides financial security to your family in case of any unforeseen eventuality.