Categories: Tax planning

All You Need to Know about ULIPs

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 %
Assure	Very Low	100%	100%	0%	0%
Protector	Low	90%	100%	0%	10%
Builder	Low	80%	90%	10%	20%
Enhancer	Medium	65%	80%	20%	35%
Creator	Medium	50%	70%	30%	50%
Magnifier	High	10%	50%	50%	90%
Maximiser	High	0%	20%	80%	100%

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

Disadvantages

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.

Shabbir Bhimani

A trader, investor, consultant and blogger. I mentor Indian retail investors to invest in the right stock at the right price and for the right time.