Prudently selected investment plans yield high-returns and provide financial security for uncertain times. However, availing tax benefits is another popular reason to make the right investment choices. ULIP is one such investment plan that combines high-returns with the added advantage of insurance and lower risk than mutual funds.
Returns over a fixed time-period are known as absolute returns. They can be expressed both in terms of increase in value and its depreciation. To put it simply, absolute return is the net profit or loss in any investment over a designated time frame.
ULIP stands for Unit Linked Insurance Plan. It’s an investment cum insurance plan, so the fund is divided into two parts, one part is used to insure the investor and the other is invested in a portfolio. Mode of investment is diverse and includes debt, money market, equity and hybrid. While there’s no upper limit on investment amount in ULIP but tax deduction cannot me claimed for any amount that exceeds Rs. 1,50,000. ULIP comes with a lock-in period of 5 years, and its salient feature is that the investor can conveniently switch from equity to debt or vice-versa.
They can also choose a hybrid plan. By the virtue of being a mix of both investment as well as insurance plan, ULIP has the advantages of both. This distinguishes it from all other investment plans. If you go for a ULIP, then for the first few years, the premium would cover only insurance and policy expenditure. Post that, the amount is divided into two parts: insurance and investment. Miscellaneous charges such as allocation charges, fund management charges are included in the overall ULIP expenses.
ULIP Absolute Returns
ULIP offers two types of returns: absolute return and compounded annual growth return. Additional charges like mortality charge, administrative charge, surrender charge etc is levied by a lot of insurance firms. This impacts the return. Absolute return in the case of ULIP is calculated in terms of current and initial net value assets. This is the simplest and sure-shot way to find out the absolute return of your ULIP investment. For instance: If you invested Rs. 100 in ULIP and it doubled to Rs. 200, then the absolute return is 100%. However, if the investment is compounded then the absolute return can’t be calculated this way.
Following are the main benefits of ULIP:
- Lifetime Coverage: ULIP provides lifetime coverage along with insurance to the family of the investor in case of untimely death
- Tax-Savings: Tax deduction on investments up to Rs.1.5 Lakhs can be claimed under Section 80C.
- Tax-Exempt Returns: The returns accrued on the ULIP investments are tax exempt as per Section 10D of IT Act.
- Higher Returns: ULIP yields higher returns than other saving schemes like FD.
- Set Long-Term Goals: ULIP enables you to set a long-term financial plan as the investment is compounded, so you can plan for the future with a long-term ULIP.
- Low-Risk: ULIP has a significantly lower risk than equity or mutual funds
- Flexibility: Investors have absolute liberty to switch from equity to debt or hybrid or vice-versa at any stage in their lives, based on their changing needs and priorities.
The Bottom Line
If you are looking for an investment scheme that provides absolute flexibility with low risk and tax-exempt returns, then you may consider ULIP. It provides an additional benefit of insurance as well. Returns earned on ULIP are tax exempt as well. With a long-term ULIP plan you can chalk out your financial roadmap for the future. If you are looking to invest in ULIP, Finserv MARKETS has got some really attractive plans. You can also compare ULIP vs SIP to figure out which plan suits you most.