Avoid risks of equity markets with ULIPs

ULIP plan

The cyclical nature of the equity markets has earned stock investing the tag of being a volatile investment avenue. You might observe that the equity markets often plummet when you begin to face troubles in your business and employment. This phenomenon occurs because equity markets are supposed to be a true reflection of the on-ground market situation. Hence, it is always advisable to have some of your investments parked in safe instruments, and some in those that allow you to switch between equity and fixed income.

A Unit Linked Insurance Plan or a ULIP plan is a type of life insurance, which allows you to invest in equity markets while offering protection for your life. When you buy a ULIP, you can avail coverage for your life with a specified sum assured as well as achieve your financial objective such as buying a home, your child’s education, or even planning for your retirement.

Moreover, the investment component of your ULIP does not have the risk of equity markets if you choose to diversify your investment in other funds. Here are five reasons why investment in ULIP, a life insurance plan, is better than investing in equity markets.

1. Strategic investing

A key advantage of investing in ULIP is you can choose proven investment strategies to allocate your funds. There are different investment strategies designed for different objectives. For instance, different funds are available to invest in a growth strategy as compared to a safety strategy or even to maintain a specific asset allocation.

Once you opt for a specific strategy in your ULIP, meaning you pick a fund or combination of funds that are designed to meet your investment goals, you can continue paying premiums normally. The amount of the premium will then be divided into providing life coverage and meeting your future financial objective.

2. Switching between debt and equity funds

Investing in equity markets exposes you to the underlying risk of stock investing. However, choosing to meet your financial goals via ULIP investments helps you diversify the risk between debt and equity funds. Debt funds are those that invest in government bonds, corporate bonds, and other fixed-income securities.

In contrast to investing in equity markets, ULIPs allow you to even switch your investment from a risk fund based entirely on equity markets to a more stable and low-risk debt fund. Alternatively, there are balanced funds that strike a balance between the equity and debt component in a fund. Thus, as you near the time horizon to meet your financial goal, you can switch to a stable investment in your ULIP.

3. Tax benefits

The premiums paid for your ULIP are deductible under section 80C of the Income Tax Act up to ₹ 1.5 lakhs. Thus, with an all-equity fund in your ULIP, meaning you invest your entire investment component in equity funds, you can avail the deduction of such an investment.

Moreover, the same deduction is available for investment in other funds, be it a debt fund or balanced fund or liquid fund. Fixed income securities that otherwise offer tax benefits offer a low chance of earning income. But, when you opt for a ULIP with a debt fund, you can invest in leading corporate and government bonds that help to grow your money in a steady fashion.

When availing of tax benefits, keep in mind that the deductions under Chapter VI A of the Income Tax Act are only available under the old regime and not the new one.

4. Systematic investment and withdrawals

If you have salary income, systematic investment over a long period is the most effective way of reaching your financial goals. With investment via ULIPs, you can make a systematic investment in the funds you desire based on your risk appetite. In addition to premium payment, you can top up your investment if you have extra cash lying around while enjoying tax benefits.

It is even possible to systematically withdraw from a ULIP. Once the 5-year lock-in period ends, you can either make a partial withdrawal or even opt for a systematic monthly withdrawal.

5. Your goal is always safe

When investing in equity markets via ULIPs, be rest assured that your financial goal will be achieved even in your absence, Since the ULIP compensates the dependents of the policy in the event of an unfortunate demise, they can fulfil these goals. To determine how much premium will be charged and how much investment is required, you can make use of a ULIP return calculator.

Considering that the risk in ULIPs can be diversified easily unlike in equity markets, you can avoid a large risk by opting for ULIPs. A ULIP return calculator can help to calculate how much funds you need to invest based on your risk appetite and financial goal.

Be the first to comment

Leave a Reply

Your email address will not be published.