In recent years, a plethora of financial instruments have been introduced with the aim of letting people grow their wealth. While investing in stocks has always been the preferred option for many, it has always carried a risk, due to the exposure to market fluctuations. Nowadays, people look for personal security as well the accumulation of wealth for a secure future. ULIP is one such financial instrument that provides these benefits in a single policy. Many people opt for a low cost ULIP plan either due to financial constraints or other reasons. Read more to understand the deciding factors of ULIP performance in a low-cost plan.
Option of funds
In a ULIP policy, you get the benefits of investment and insurance. Investments are done in market-linked funds. You get to invest in equity and debt funds. In equity funds, you get to invest in stocks of market-listed companies. This fund offers great returns but also has a high-risk factor. In debt funds, investment is made in government securities and bonds and other liquid markets. This fund offers low to medium returns and has a low risk factor. You also have the option of investing in both funds at the same time to balance your investments, gain consistent returns and keep the risk minimum. If you are opting for a low cost ULIP, be sure to check what options are offered in the funds. If the ULIP plan has many options, it would be beneficial in terms of your investment portfolio.
When you invest in funds in a ULIP, you get the option of switching. The switching option basically allows you to reallocate your investment from one to another. For example, if you have invested 70% of your capital in equity funds and 30% in debt funds; you want to increase your investment in debt funds, you can do so with the switching option. You can increase your investment in a debt fund. The number of free switches allowed vary from insurer to insurer. When looking to invest in a low-cost ULIP plan, be sure to check if the switching option is offered. Also, look for how many free switches are offered and what are the charges per switch beyond the free limit.
In a ULIP plan, you get tax exemption on the premium that you pay for the policy. Under Section 80C of the Income Tax Act, premiums paid up to Rs.1,50,00 are eligible for tax exemption. The maturity benefits and partial withdrawals are also tax exempt under Section 10(10D) of the Income Tax Act. Before you invest in a low cost ULIP, make sure to check the limits for which tax exemption is allowed. You can a use ULIP calculator from your insurer’s website to get an idea about how much your tax returns could be based on your investments.
There are various charges that are applied on your ULIP policy in the initial period. Charges related to managing the fund, paperwork, and other charges related to the ULIP, are levied by your insurer. These are charges that are deducted from the premium you pay. Before you invest in the ULIP, inquire about the charges that could be applied and how much would they be. It is important to know about these charges before you start investing in the funds. You can use the ULIP calculator to understand how much of the deductions would be done from your premium payments.
Once your ULIP policy matures, you as a policyholder, get maturity benefits. These benefits are the returns that you gain from your fund investments. If the policyholder passes away due to some unforeseen circumstances, their family is entitled to death benefits. Before you invest in a low-cost ULIP plan, make sure to get an idea of how much the maturity benefits would be based on the term of the plan.
If your main goal is to invest in a good, low-cost ULIP plan, these are some of the key factors that you need to be aware of. To know more about other factors and what ULIP plan is in general, you can get in touch with your insurance advisor.