WHY ARE ULIPS GOOD LONGTERM INVESTMENT?

August 2, 2017 10:48 am2 commentsViews: 2109

As soon as you start earning, you become responsible for achieving your financial goals. Your short-term goals or household needs may see some helping hands from family members or parents, but the long-term goals, related to kids, house or even retirement are entirely on your shoulders. To achieve these goals, you need long-term investments which not just keep your investment safe but also make it grow.

What is a Long Term Investment?

Long term goals have their challenges which demand a unique set of features in the long term investments. Most prominent of these challenges are as follows:

Inflation has a greater impact: Inflation for different expenses works differently. For long term goals, inflation depends on the economic growth. Therefore, the cost can be exponentially high going forward, especially in a fast-growing economy like ours.

– Future is unpredictable: It is difficult to certainly predict existence or feasibility of the objective 20 years from now. The World is changing fast, and education, occupation or professions that are prominent now may become obsolete 20 years from now. Thus, how can you be prepared for something that cannot be imagined or envisioned right now?

Any long term investment you start now should be able to factor in this growth in the maturity value.

– Needs may change: With changing times, lifestyle needs and goals may change over time. Mostly the lifestyle improves and so the cost of future goals.

A simple example can be the vehicle you bought when you started working. If you do well in your profession, chances are you will never buy the similar vehicle in future. Instead, you will constantly look for something better; i.e. Maruti Suzuki to Mercedes Benz.

Your long term investment should allow you to withdraw or add to the corpus midway to suit your changing requirement.

– Taxes may affect the returns: In most of the investments, the only time we considertaxation is at the time of investing. That is whether the investment offers deduction under section 80C. However, it is the taxability at the time of maturity that hits the return much harder in long term investments.

Therefore, a tax efficient long term investment should be there to minimise the impact of taxation at the time of maturity (at the 11th hour when you need the money for the goal).

– There are financial emergencies and life risks: Just as future is unpredictable about the economy and goals, it is unpredictable about life. A small accident or hospitalization, keeping you out of work for one or two months and draining your savings is enough to derail your long term investments. Even if for a short duration this can be dangerous.

Therefore, your long term investment should either protect itself from such shocks or protect you and your family from such financial emergencies.

Factors That Make ULIPs the Best Long-Term Investment

ULIPs or Unit Linked Insurance Plans are one of the most feature-rich investments available to Indian investors. ULIPs have all the features desirable of a long term investment plan as discussed above and more:

Invest in Equity Stocks and Fixed Income Securities through ULIP: ULIPs offer multiple investment options including:

– Equity markets, which is the best option for long term investors. Equity markets grow as per the economic growth, and thus, a higher growth automatically improves return on your investment.

– Fixed income instruments, which are safe investment option with reasonable growth potential over thelong term.

– Money Market, for short term investments, use these funds to invest systematically in equity funds to benefit from rupee cost averaging.

Good Liquidity Offered by ULIPs: Investors can withdraw part of the corpus after just five years of investment. Thus, even for long term investors, it is possible to use the corpus accumulated in a ULIP in thecase of an emergency. Additional investments can also be made if your goal is revised upwards due to lifestyle changes or otherwise.

Inbuilt Life Insurance: Life insuranceis inbuilt in ULIPs so that if anything happens to the investor midway to the goal, the nominee gets a lumpsum amount to continue his/her quest for financial freedom and lifestyle.

Tax Benefit with ULIP: ULIPs are one of the most tax efficient investments. You can save on tax payable in a financial year by investing up to Rs. 150,000 (applicable for F.Y. 2017-18) in ULIPs.
Any interest credited to the ULIP corpus during the investment period is exempt from tax, and even maturity value or any partial withdrawals (made after at least five years of the purchase) are not taxable. Thus, once you invest in ULIP, you can be relieved that taxes will not hamper the maturity value in the end.

Additional Benefits: ULIPs offered by insurers like ICICI Prudential Life have some very useful additional benefits:

– Guaranteed Wealth Additions and Loyalty Additions: Additional units are credited to investor’s account if they stay invested for more than five years.

– Smart Benefit: Investmentscontinueeven after the death of theinvestor, as if the premiums are still being paid until the intended maturity of the plan. This is even when a lumpsum has already been paid as adeath benefit to the nominee of the insured.

How to Invest in ULIP?

You can now invest in ULIPs online without any hard paperwork. Simply select the plan to invest in and complete the application online at your convenience. It is not necessary that you complete the application the same day you start, you can come back and complete it later. In thecase of any queries, support is available 24×7 through call or chat.

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