help plan for retirement and offer the security of insurance.
You have some amount of money for investment and are exploring various long-term investment options. You plan to invest for a long-term to create a good corpus for your child’s education as well as for your retirement. You may then think about Unit Linked Insurance Plans (ULIPs) that are an attractive investment option these days.
ULIPS are attractive mainly because they provide you with an investment option as well as an insurance cover as add-on. Out of the Premium that you provide for a ULIP plan, a certain portion goes for providing you life cover and the rest for investment. However, your investment in ULIP will yield good results only if you invest for a long Term of more than 10 years.
On the other hand, Mutual Funds (MF) are an investment option where your money as well as of other investors is pooled together and invested in stocks, bonds and so on, on behalf of everyone who is participating in the scheme. As there are many investors who are pooling their money together, MFs are a productive form of investment. You can thus purchase stocks and bonds at a much lower trading cost than when we do it on your own. Moreover, in most cases of MFs, your money will be available to you anytime you want. Also, there will be a fund manager who will invest and manage the money on behalf of the investors.
Therefore, in many cases investors are in a fix as to whether to buy ULIPs or MFs with their hard-earned money. Listed here are some key advantages of ULIPs that make them more attractive than MFs.
With your hard-earned money, it is a natural question as to where you will invest to get maximum returns. ULIPs are definitely a better option when it comes to long-term investment. The insurance Coverage is an added advantage. The other benefits of ULIPs over a MF are listed here:
ULIPs are a long-term insurance-cum saving instrument, and hence if you plan to invest on a long-term basis, you must go for the ULIPs.
A minimum of 10 years investment for ULIPs is a must to get reasonable returns, even if you have the option of partial withdrawals. This is useful when planning for kids education, retirement planning and so on.
The regulatory cap imposed in 2009 on various ULIP charges have made ULIPs more attractive than what they used to be. They yeild higher returns now than they used to earlier. Also, now there are incentives such as Gauranteed Loyalty Additions for investments of time period longer than 10 years.
ULIPs earlier included a service tax of 10% on various components such as Policy administration charges, premium allocation charges, mortality charges and so on. Now tax on all these components have been eliminated except 10% tax on fund management charges. This has enhanced the internal rate of return (IRR) for both new and the existing customers.
ULIPs allow you to switch between equity funds and debt funds or vice versa without any entry or exit charges as in the case of Mutual Funds.
ULIPs have something for all investor category because it provides high flexibility in shifting asset allocation.
With ULIPs you enjoy tax benefits too under Sec 80C.