Once you begin your financial journey, you establish your short-term and long-term goals. Short-term goals can be as simple as traveling to a certain place or buying your favorite smartphone. Whereas long-term goals are of five years and above. It can range from buying your dream house to building your retirement corpus. When you are investing your money, you need to keep these goals in mind and invest accordingly. The best instruments are those that create short-term and long-term wealth. One such product is ULIP (Unit Linked Insurance Plan).
Meaning of ULIP
ULIP is a two-in-one unique product, where the premiums that you pay are used partly towards providing life insurance and partly towards investment purposes. You can choose the cycle of the premiums according to your convince, be it monthly, half-yearly, or yearly. With a ULIP calculator, you can get an estimate of your investment and its returns. You can choose the funds you want to put your money in based on your risk appetite. People who are willing to take risks to invest in equity funds, while people who are looking for safe investments place their money in debt funds. Those who want moderate risks in return for moderate returns can invest in balanced funds. Balanced funds comprise both equity funds and debt funds.
ULIP – A short-term investment
A ULIP has both short-term and long-term monetary benefits. Here are some short-term financial benefits of a ULIP policy:
Enables flexibility
Your investments depend upon your risk-taking ability. When an individual has a high-risk appetite, they prefer to invest in stock markets. Whereas, when the risk appetite is low, people prefer conventional investments like fixed deposits (FDs) and recurring deposits (RDs). When you buy a ULIP plan online, you can switch between the investment of your choice anytime you want. You can choose equity funds and then later switch to debt funds or vice versa.
Encourages savings
When you are working on creating wealth, the habit of savings is important. A ULIP inculcates the habit of savings amongst individuals early on. When you pay premiums every month, you set aside some funds as an investment. You will receive these funds after your ULIP matures, along with the returns.
Annual tax benefits
The premiums that you pay on your ULIP are exempt from taxes under section 80C of the Income Tax Act. Under this section, you can avail of the tax benefit of up to Rs.1,50,000 every year. The tax benefits you get on your premiums is another reason to choose ULIP for wealth generation. When you do your taxes every year, your ULIP will help you in saving tax money.
ULIP – A long-term investment
For choosing long-term investments, a lot of research is a must. In the checklist of factors, long-term investment is a must-have, and a ULIP checks all the boxes. Here are some features and components that make ULIP the perfect investment in the long haul:
Market-linked returns
Market volatility influences ULIP, which allows you to make the most of the market fluctuations. With a ULIP policy, you can switch between debt and equity funds anytime you want. ULIP with equity funds generates high returns, in the long run, enabling ULIP for wealth generation. After gaining sufficient returns from equity funds, individuals prefer to switch to debt funds in the later stage of the plan. Switching to debt funds near the maturity period ensures that your money is at low risk.
Compounding benefit
When you buy a ULIP for the long term, you get the benefit of compounding. Compounding means that on the initial investment, the returns that you receive will eventually accumulate and become the principal amount. Say on Rs.100 you received a 10% return in the first year, which is Rs.10. Now your new fund value is Rs.110. In the second year, you will receive a 10% return of Rs.110. In the long haul, compounding helps in multiplying your returns exponentially. You can also use a ULIP calculator to check on the estimated returns you can receive over the years.
When you buy a ULIP plan online, as an investment, you get both the short-term and long-term benefits. Along with that, the life insurance component of ULIP has got the function of protecting your loved ones covered.
