Today, we’ll discuss the top five ULIPs that are popular with policyholders, not only because they offer tax benefits but also because they pay out a respectable amount of interest and may be set up to help them reach a certain objective. Before we discuss the features of each of these ULIPs, we should know what one feature each of these ULIPs has in common.
It is a frequent misconception that investing and insurance should not be combined, yet modern ULIPs are quite affordable and cost-effective when compared to other equity-linked investment options, such as mutual funds. Do keep in mind that the new Tax Regime does not give the benefit on these instruments, but the old tax regime does.
In terms of the ULIP benefits, unlike mutual funds, where you must invest in many mutual funds if you want to build a portfolio, one can choose between a debt fund, an equity fund, or a balanced fund inside the same plan. Additionally, all ULIPs offer unlimited free switching, which is another great feature.
Before reading on, remember that a ULIP calculator is a simple and easy-to-use tool to assess the return you might get during maturity by entering just a few details.
The Investment Component Of A ULIP Plan
There are two components to every ULIP plan: the investment component and the mortality expenses. The mortality charges are paid back in this instance upon maturity. As a result, you pay that money throughout the payment term, but it is refunded after the tenure or the policy term.
Through a single plan, ULIPs give investors the freedom to invest in a variety of funds. If you are making an investment of Rs 100 in a ULIP, you can invest 30% in debt, 30% in equity, and the remaining 40% in a balanced fund. You can choose a loan fund, an equity fund, or a balanced fund. So, in essence, you can develop a portfolio inside the same plan. The majority of these ULIPs each have between 8 and 10 funds available.
The effective cost ranges between 1.7% and 1.8%. Therefore, out of Rs 100, Rs 98.2 or Rs 98.3 would be invested, and the remaining Rs 100 will be used to pay fees, which also include fund management fees.
What Makes ULIPs So Unique?
ULIPs have routinely surpassed the benchmark with their investments over the last 10 or 12 years. Some of their funds have performed 8% to 10% better than the benchmark. It has more to do with their investment philosophy of choosing the market leaders in every sector and in the case of midcap funds, their ability to predict the subsequent large winners in each sector and their selection of the appropriate stocks for the portfolio.
Are ULIPs Of Today, Or ULIPs 2.0, Able To Outperform Inflation In Terms Of Return?
In the past three years, the returns have been excellent. They can reach 20 to 24%. But over the long term, policyholders can anticipate returns of between 12% and 14%, even though they can reach as high as 17% or 18% if you only look at returns over seven years. But normally, one can anticipate a return of 12% – 14%.
Can We Just Purchase A ULIP Plan Instead Of Equities And Mutual Funds?
Yes. ULIPs are a wise choice if you’re trying to make a goal-based investment and have a longer investment horizon than five years. However, ULIPs are not at all beneficial if you have a very, very limited time horizon and a short term necessity. One is that they have a five-year lock-in period, which is advantageous in this situation since it establishes the disciplined habit of investing every month or every three months.
As investors, our inclination is to always purchase when the market is rising and frantically sell when the market is down. This guarantees that your money gets averaged out over the long run, and you obtain greater returns. That holds true for both stocks and mutual funds because there is a five-year lock-in in this case that works well and because unit averaging results in better long-term performance. So, ULIPs are a very, very smart buy if you have a time horizon of at least five years, and they offer many ULIP benefits.
You can use a ULIP Calculator to estimate future returns and the value of a ULIP investment.