How To Earn Maximum Returns With ULIPs
Investment in ULIPs is a very good, but often underrated option for people with moderate risk appetite and long-term investment goals. ULIP or Unit Linked Insurance Plan offers dual benefits of insurance and investment under one plan. With the returns from equity being tax-free, ULIP has always been one of the smartest investment options for people who can afford to think long-term.
With increasing awareness, more and more investors are now investing in ULIPs as they provide a wide variety of funds to choose from to meet your changing needs at various life stages. However, what many investors don’t know is that they can make the most out of their investments by making necessary changes in their existing ULIP policies over time.
You can also change the fund allocation in your ULIP policy, depending on the market situation. For example, when the markets are high and you feel that they may not be able to continue as such for long, you can shift your funds from equity to debt. Similarly, when the markets have taken a downturn, you could shift your funds from debt back to equity once again.
Let’s talk about some ways by which you can maximize your returns from Unit Linked Insurance Plans in this blog post:
Stay Invested for Long Term
In order to gain maximum returns with your ULIP, you need to invest for the long term. Generally, the lock-in period for a ULIP is five years. Although this may seem like a long enough period—and it is—you are advised to invest for longer periods than 5 years.
The longer you stay in a ULIP, the better the powers of compounding work in your favor. This means that instead of only earning from the interest on your initial investment, you also earn from the interest on the earnings you have accumulated as well.
Consider Your Present Life Stage
As you are aware, Unit Linked Insurance Plans (ULIPs) are investment plans that can help you meet a variety of financial goals. Despite the wide range of options available to you, keeping your current life stage in mind when selecting a plan is critical.
This is because the risks you take should depend on the age at which you are investing. The primary reason for this is that equity funds are riskier than debt funds. Therefore, as your financial responsibilities grow, you should consider switching to the latter and moving away from investing in equity funds.
Similarly, if you are just starting out and have fewer financial obligations, you may want to allocate more of your ULIP portfolio to equity funds than debt funds. When you’re young, you have more time to recover from losses that you might suffer from investments in equity funds.
And because you don’t have as many financial responsibilities or obligations at this stage in your life, it’s worth taking this risk for the potential returns that equity investments can offer.
Modify Your Fund Allocation
The key to earning the most from ULIPs is in choosing the right policy, but one of the best features of a ULIP is that it gives its investors an opportunity to make changes once the policy has been purchased.
In particular, you can switch between equity and debt investments. If you’re investing for retirement, this is a great tool to take advantage of. You can switch between equity and debt investments to match your needs with the current state of the market.
If you’re closer to retirement, you’ll likely want to be more invested in debt; if you’re far away, you’ll want to be more invested in equity. But as time goes on and you grow, your focus will shift from one to the other.
And if we see a dip in the market while you’re still working? Switch your funds back over into equity, so that when things rebound—as they always do—you’ll have a chance to make up those losses with higher returns.
If you’re not sure how often your portfolio should be rebalanced, talk with a financial advisor.
Make Use Of Tax Benefits
Taking advantage of the tax benefits is a great way to maximize your returns when investing in unit-linked insurance plans. By investing in equity funds, you can obtain the EEE tax benefits. This implies that one can avail of income tax exemption of the capital, interest, and maturity by investing in ULIPs.
Contrary to popular belief, ULIPs are not only meant for those who invest a large amount of money at once. These plans are ideal for individuals who have a small budget and want to invest on a monthly basis.
Stay Consistent With Your Investments
Despite being a popular investment instrument, ULIPs have always been surrounded by a lot of myths and misconceptions. One such myth is that you don’t earn good returns on ULIP investments.
This can be attributed to the fact that people tend to look at insurance as an investment option when they are nearing retirement and have not been able to build up a significant corpus. However, this is not entirely true.
If you invest in a ULIP wisely and in time, you can indeed earn high returns and make the most of your investment. Investing in any financial product early in life will help you gain better returns over the long term because of compounding interest.
The same holds true for ULIP investments as well. If you were to invest in a ULIP plan from 25 years of age until retirement (at 65 years), you would be able to create a substantial corpus, which could allow you to enjoy your retired life to the fullest with complete financial security and stability.
ULIP policies are a popular investment product and offer lucrative returns. They are one of the best options for tax planning. Having said that, there’s still plenty you can do to benefit from this investment plan.
If you know how ULIPs work, how your policy works, and can plan ahead for inflation, you’re going to see maximum returns for the amount you invest. So, make sure you keep the aforementioned tips in mind to make the most out of these plans. You can also use a ULIP calculator to determine the estimated returns you can gain from these plans.