Is ULIP a good investment option? Do you really know what is ULIP plans and how they work? In this article, I will try to simplify the meaning of ULIP plans and also share whether you should invest in such products or not in this ulip investment guide.
What is ULIP or Unit linked Insurance Plan?
The full form of ULIP is Unit Linked Insurance Plan. This is an insurance policy which will provide life cover as well as return on investment which is linked with share market. Generally we called them as insurance cum investment product to provide both the benefits to users.
Is ULIP like other insurance + investment plans?
No, ULIP actually invest your money to various market products or types of funds (debt or equity) or a mix of both based on their investment need and appetite. Generally ULIP invest in equity, money market, fixed interest bond funds & balanced funds.
The return from ULIP plans are not good in short term. But if you stay invested for long term, then a good return can be expected which will be on average of 7% – 8% max. The main reason for such low return is due to various charges in ULIP plans.
How ULIP Plans Work?
The premium amount paid by you under ULIP plans, will be distributed to various funds selected by you. This is like Mutual fund investment only, with some differences. There are various charges in ULIP which will be applicable to your premium amount first and then the remaining amount will be invested.
How can I track ULIP fund value?
One can easily track ULIP plans and how many units purchased using their insurance company portal. Like mutual funds, your account will be allotted with the units of funds and your fund value will be calculated as No. of Units X net asset value (NAV) of the the fund on that particular date.
Time to time, you can review your investment and if you think you can use the switch facility to change the investment style. E.g. You may started investing as 80:20 ratio in equity & debt and when market is on higher side, you can easily switch to a 20:80 debt & equity ratio. This is just an example to explain what is switching facility in ULIP plans.
Can I withdraw money from ULIP partially?
Yes, but its not recommended to get good return in long term. Check out with insurer whether they are offering any partially withdrawal clause or not.
Why should I invest in ulip now?
When you invest in such products, you will get income tax benefit under section 80C. Not only that, there are no switching charges for many ULIP plans, compared to mutual funds which is a great facility. By following the market trend, you can easily utilize the free switches and make most out of your investment. But in case of mutual fund, every transaction will attract some charges.
If you are a long term investor and love to monitor your money with a moderate return on investment, then ULIP could be a good investment product for you with a moderate return as per your risk-profile.
Why you should not invest in ULIP plans?
Are you thinking to buy ULIP plan as your friends has done that? Then better you read this part first to know why you should not invest in ULIP plans.
- Mostly I found people are looking for maximum return investment product with zero risk. In other way, guaranteed return products only. In that context, ULIP is quite risky as the investment is linked with market and if you don’t select the investment profile properly, then you may end up getting low return.
- In case you want to invest for short term only, then this is not at all a good product for you. As ULIP has a 5 year locking period. Even if you surrender after 1 year, your investment will also attract discontinuation charges and your investment has to be there for 5 years.
- ULIP has various charges in initial years, that means the net return in first few years will be very low. But in long run the return will improve.
- From a life insurance point of view, the life cover of such product is very low. You can’t buy an ULIP plan with a high cover like term insurance plans as the premium will become very high in that case.
So, Should I Invest in ULIP?
I always believe that one should feel comfortable with any kind of financial product by understanding the return and how various things are calculated. Don’t just put your hard earned money in some investment as I am saying or anyone is saying.
First of all, you should ask yourself why you are buying this product or what is the goal you are going to achieve with this investment. If you are looking for a moderate return, long term investment option and also know how to take advantages of ULIP switches, then definitely you can invest in ULIP plans.
But in case, you want to take more risk and just don’t want to track your investments frequently then definitely you could look for other options like mutual fund or PPF etc. But remember that you have to consider the year to year inflation which will eat the majority of your return as ULIPs will return only on approx 7-8% on long run, when the inflation is at 5-6% annually.
There are various alternatives to ULIP, but you have to sure for which goal you want to put your money and accordingly plan your finances. If you are looking to buy any ULIP plan, then check out the popular insurance companies in India like ICICI Pru, HDFC Life , SBI Life who are offering various ULIP plans for wealth creation.
My Opinion: Personally I don’t like ULIP or any kind of insurance product who promises to give good return. Because in this way you will not be able to get an adequate life insurance nor you will get good return in long run. If you want to save money for your retirement or save money for your child education, then you need an investment way where you can expect a return like 12-14% in long run. And ULIP can’t be able to give you this. Even if you want invest for saving tax, there are various ways to save income tax.
Have a question on ULIP, then just write a comment below and ask your query.