Basic Guide to ULIP Plans

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ULIP plans are one of the most popular investment options in India today, not only because they are free of long term capital gains tax, but also because they have been delivering consistent performance even, despite the unpredictable market conditions. These features have made ULIP plans a favorite among investors in India.

What are the ULIP Plans?

Unit Linked Insurance Plan is a hybrid life insurance product that offers risk coverage for policyholders, along with an investment component. The investments are usually made in stocks, mutual funds, bonds, etc. Introduced in 2005, a ULIP policy works best for those who engage in high-risk investments to achieve high returns. By offering both insurance and investment options, ULIPs act as one integrated plan where the two parts can be managed according to specific investor needs.

Benefits of ULIPs

  • ULIP plans in India are great investment options in terms of tax benefits. You can enjoy tax exemptions under Section 80C of the Income Tax Act, 1961 of up to ₹1.5 lakhs on the premiums paid. The returns are also free of taxes.
  • In comparison to other insurance plans, ULIPs offer higher liquidity. They allow you to withdraw a certain amount from the investment after a specified lock-in period. This withdrawal is also completely tax-free.
  • These plans let you choose your area of investment. Depending on your financial goals, market trends and risk appetite, you can switch your investments between equity, balanced funds, and debt funds, to maximize gains.
  • They are great tools to achieve your financial objectives, such as the education of children, retirement planning, wealth creation and so on. You can make create an effective investment strategy according to your goals while diversifying your portfolio.

How Does a ULIP Work

The premiums that you pay towards the plan get divided into two components. One is invested in your chosen funds, after deducting certain charges, such as for allocation, policy administration, insurance cover, fund management and so on. The deductions are done by canceling units. The other part of the investment is used for the insurance cover.

Who Should Invest in ULIPs?

ULIPs are perfect for those who want to keep track of their portfolios regularly and want to stay invested for a long time. These plans have a total of seven funds and the equity component ranges from zero to 100%. This means that there is a plan for every type of investor – those who do not want to take risks at all, as well as those with a high-risk appetite. These funds also cater to various age groups, according to their financial requirements and liabilities.

If you want to grow your money and save taxes simultaneously, ULIP plans can be a great option in India.

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