Are you using your surplus income in the right way? Have you invested in a suitable financial instrument to secure your financial future? These are a couple of questions out of many that you need to address.
Inflation and unexpected expenses can hamper your savings in the long run. You can make the most out of your spare money by investing it in a good investment instrument. Unit-Linked Insurance Plan (ULIP) is one of the most popular financial products available in the market today. It is because a ULIP plan offers the dual benefits of life insurance and investment. This package has made it a famous investment option. People have many queries in mind about ULIP funds. Let us look at some of them.
FAQs on ULIPs – Frequently Asked Questions on ULIPs
- How ULIP works?
Investing in ULIP is one of the best ways to meet your monetary aspirations and secure your loved ones’ financial future, especially when you are not around. A part of the premium is invested in equity, debt, or a mixture of both.
- Is investing in ULIP a smart move?
ULIP funds are structured for people who have a long-term investment horizon. It is advisable to stay invested in ULIP for a minimum timeframe of 10-15 years to earn better returns. A ULIP is ideal for those who want life insurance and wish to grow their funds to meet financial objectives. You can complete the milestones of your life, like buying a new house and financing your children’s education and their wedding with ULIP.
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- How is the ULIP Net Asset Value (NAV) calculated?
The formula used to determine the ULIP NAV is:
NAV = Total of your current assets as per the present value + Current market worth of your investments) – ( Current price of your liabilities) ÷ The overall units you possess to date
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- Can a person with zero market knowledge invest in a ULIP plan?
Yes, a person with no idea about the equity market can invest in a ULIP by seeking a professional fund manager’s services. The fund manager’s role is to manage your portfolio by studying market trends. He or she will advise you to invest wisely, helping you earn good returns. It is essential to hire the services of a reputed and qualified fund manager.
- What are the tax benefits offered by ULIP?
Under Section 80C of the Income Tax Act 1961, the policyholder’s payment towards the premium is tax-free up to the permissible limit INR 1.5 lakh per annum. Besides this, the amount received on maturity or death benefit is tax-exempt under Section 10(10D) of the Act.
- Under what circumstances can I lose money in ULIP?
ULIP funds have a mandatory lock-in period of five years. Still, if you surrender the policy or stop paying the premiums before this duration, the insurer will levy discontinuation charges. However, if you surrender the policy after the compulsory lock-in duration, the insurance company will deduct the expenses related to the policy’s soliciting and administration.
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- What are the significant benefits of ULIP?
Besides tax deductions, ULIP offers the flexibility of switching from one fund to another. Also, it inculcates the habit of goal-based savings, ensures transparency, provides better returns, and gives you the opportunity to invest in funds of your choice. All these offerings make ULIP a noteworthy investment avenue.
Investing in a ULIP plan allows you to grow your funds in the long term by reaping compounding benefits. Therefore, it is vital to search for an appropriate plan that can help you meet your financial goals, as per your risk-bearing appetite.
