Its Fiscal Year Ending and all we have in our priorities is tax savings and many users ask me about ULIP and so here I come with the all you need to know about ULIPs in practical terms. What it is ? How you can benefit from it? What are the features any ULIP should have? Why ULIPs are so popular?
Its Fiscal Year Ending and all we have in our priorities is tax savings and many users ask me about ULIP and so here I come with the all you need to know about ULIPs.
What is ULIP?
ULIP stands for Unit Linked Insurance Plan and it is a Life Insurance Plan and the main difference between ULIP and traditional insurance is ULIP has option in the hand of investor to select his risk profile and so returns vary like 100% equity based or balanced or debt etc.
Apart from the fact that you can select your own preferred profile of investment there is a greater flexibility in terms of premium payments which means a premium holiday is possible as well as invest surplus money by way of top ups ultimately increasing your investments.
In 1971 the UNIT TRUST OF INDIA offered first unit linked insurance plan in which out of insurance premium a small part of contribution was utilized for providing life cover and rest was invested in units.
Features of ULIP
Apart from standard insurance features ULIP provides the following added features like
- Investment and savings.
- Equity Linked returns.
- Flexibility in premium.
- Adjustable life cover.
- Tax Benefits.
- Free switches between available investment options.
- No regular premiums after 3 years.
- You can withdraw partially or wholly after 3 years.
Investment Allocation Table
There are several options within a ULIP. you can select the option that best fits in with your risk profile and helps you achieve your investment objective.
|Investment Option||Risk Profile||Debt Instruments, Money Market & Cash||Equities & Equity Related Securities|
|Min %||Max %||Min %||Max %|
The above allocation is done by diversifying your investments into the following category of funds
|Type of Fund||Investment Profile||Risk|
|Equity Funds||Invest primarily in stocks||High|
|Bond Funds||Invest In Corporate Bonds,GOVT securities and other fixed income instruments||Medium|
|Cash Funds||Invested in bank deposits and money market instruments||Low|
- No guarantee of returns
- Very high administrative charges. As high as 20% .
- Past performance may not be the way to judge the returns in future.
- You may incur losses if you do not do it wisely and keep track of it often.
Remember there is no one on this planet who is going to make you wealthy. You have to be doing it for you and so if you do invest keep track of it always.
If you have more questions post in comments. I will be more than happy to answer them.
According to me Insurance is never an investment and see why here.