To invest or not to invest - equity investments have always been a point of contention for most investors. Equity is often used as a synonym for the high risk, and that explains why many investors are opposed to the idea of investing in it. However, given the fact that the entire world is going gaga over these funds, it may be time to open your hearts to them and what better way can there be to do this, other than Unit Linked Insurance Plans (ULIPs).
Understanding how ULIPs work
ULIPs work on premiums. When you buy a ULIP, you pay a premium for it. This premium gets divided into two parts. The first part is used to secure your life. In the event of death during the policy term, the chosen sum assured or fund value is paid to the nominee. The other part is invested in the fund of your choice. This can be either equity, debt, or balanced. The investment grows over time and helps you beat inflation and build a large corpus to meet all your financial goals.
If you choose equity funds, your money is invested in the equity market. Equity is known to be the riskiest of all options but can also bring in higher rewards.
ULIPs as part of your equity investment strategy
As explained above, a ULIP is a dynamic financial product that offers insurance as well as investment opportunities under the same policy. This twin benefit makes the product more stable and secure, thus appealing to numerous investors. Equity funds, on the other hand, are known for their volatile nature. However, the combination of ULIP and equity funds can create an acceptable common ground for most investors.
These plans offer seven diverse funds that can be chosen as per your risk capacity, market outlook, and current and future goals. You can choose from Equity Large Cap Fund, Equity Mid-Cap Fund, Managed Fund, Equity Top 250 Fund, Equity Blue Chip Fund, Bond Fund, and Gilt Fund. The plan also offers the option to switch from one fund to another as many times as you want. So, you can cap on all market opportunities.
This fund switching feature offers an added protection to your investment portfolio with the choice to switch from fund to fund at any given time. If you want to divert the risk from your portfolio, you can simply shift to safer options, such as debt funds. After a while, you can move back to equity if you like. There is no cap on the number of times you can switch in between funds, so the choice ultimately lies on you. This adds more flexibility, and you know that you can reduce volatility and risk on your investment portfolio anytime you want.
ULIPs add more security than traditional equity investments
The biggest advantage of ULIPs is the additional earnings on them. Some ULIP plans offers loyalty additions every year from the end of the sixth policy year onwards. In addition to this, the plan also offers booster additions every fifth year starting at the end of the tenth policy year. Lastly, you can earn maturity additions at the end of your policy term. This way, not only do you earn profits from your equity investments but also get rewarded by the insurance company for staying invested in the plan for the long term. A perfect win-win situation!
ULIPs are easy to handle
Equity investments are risky and hence require time and active management. This may not be easy for all investors. Young investors who have little experience in investing can especially feel overwhelmed with market fluctuations and may end up making hasty decisions that go against them.
ULIPs come with tax benefits
The tax benefits on premiums under Section 80 (C) and on the maturity benefit under Section 10 (10D) can further increase your earnings.
To sum it up
Equity ULIP investments let you benefit in several ways, making them a suitable addition to your equity investment strategy. These plans can offer stability, security, and growth on your hard-earned money and can be suitable for all ages. Moreover, the option to switch between funds and reduce or increase risk at your discretion makes them an excellent investment tool.