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If you are a last-minute tax planner, make sure you link your tax-saving investments to your long-term financial goals. Income tax can decrease not only your take-home salary, but it can also put a dent in the amount you can use towards your investments. This is why you need to invest in a well-planned investment option to boost your earnings and help you achieve your investment goals.
An excellent money-saving investment option depends on several factors such as rate of return, maturity period, and lock-in period. Most debt instruments usually come with maturity terms of 10,15, 20 years. And while government-backed investment options like National Savings Certificate, Public Provident Fund, and Sukanya Samriddhi Yojana offer a fixed rate of return, come with a lock-in period of 5, 15 and 21 years, respectively.
In terms of return, equity-oriented schemes such as ELSS (Equity Linked Saving Schemes) and ULIPs (Unit Linked Insurance Plans) rise above other instruments. ELSS are tax saving mutual funds, whereas ULIPs are insurance policies that invest in the stock market through a mix of funds which in turn invests in balanced, growth and equity schemes.
ULIP is one of the most popular life insurance products for wealth creation. ULIP makes the ideal investment choice in case you are looking for good returns on your investment without taking too much risk on market fluctuations and also avail tax benefits along with life cover. However, you need to consider some factors in order to maximise your returns on your ULIP investment. To get better returns, you need to monitor your investments as well. This would involve market research on historical returns, market trends and stock performance.
ULIP helps you enter the equity market most cost-effectively and earn sizeable returns on your investment over a period of time. A ULIP is nothing but a life insurance policy with an added advantage of the capital market investment. Top life insurance companies in India offer best ULIP plans that help you invest a part of your policy premium in some of the best investment options and rest for your life cover.
ULIPs generally come with a lock-in period of five years, and they make a perfect investment option for investors who are looking for a long-term investment plan. For instance, if you stay invested for 10 to 15 years, you can benefit from the power of compounding. The money that you have invested initially will be reinvested as the principal amount to grow year after year.
Equity and debts funds have different characteristics. Usually, equity funds are considered as high-returns and high-risk value funds. On the other hand, debt funds are comparatively less risky and offer low/stable returns over a period of time. ULIP debt schemes come with a low-risk component as compared to equity schemes. There are balanced funds, which provides a mix of debt and equity component to balance the risk and returns.
Most ULIP plans offer a certain number of free switches between funds which help you to manage asset allocation of your investment portfolio. The best way to maximise your ULIP returns is to diversify your ULIP investment across different asset classes. This will help you to create a diversified investment portfolio, and in case a particular asset class is not performing well, it can be balanced by the profits earned on another asset class. This way, it decreases the risk of your overall investment. If you are able to optimise your ULIP asset allocation strategy correctly, you can figure out the risk to return ratio on your investment portfolio.
Moreover, you can switch your ULIP investment between different asset classes like debt, equity, and balanced funds, depending on your risk appetite and the investment goals that you have set. The decision you make will have an impact on the returns.
Usually, the prime motive of starting ULIP investment is wealth creation, and to save for future expenses such as a child's education and marriage, buying a house, retirement, etc. Thus, your investment goals play an important role in defining your risk appetite. For instance, in case you are saving for a child's education, then the basic thumb rule is to switch from equities to debt funds when you are closer to withdrawing funds after building a corpus. This is an effective way to save the wealth you have built over the years.
It makes sense to invest in ULIP plans only if you have some risk appetite. As ULIPs provide life insurance cover, the beneficiary receives either the fund value or the sum assured, whichever is higher upon your unfortunate death event.
In case you survive through the maturity term of your plan, you will receive the fund value. Therefore, it is important to stay updated during the policy term to make sure that you get a higher fund value at the time of maturity or your beneficiary gets it in case of your demise.
The five-year lock-in period of ULIPs inculcates saving habits among investors and helps to generate compounding returns on long-term investments. Some insurance companies also provide loyalty benefits to the investors by paying back the charges that were levied at the time of plan activation. These charges generally include fund management charges, administration charges, mortality charges and surrender charges.
ULIPs make an excellent market choice when it comes to maximising your returns on investment along with market exposure and life insurance cover. It offers financial protection to your family and the growth of your funds. ULIPs are not only versatile in terms of being an investment option but also helps you in saving income tax.