Finance

Looking for a Goal-Based Investment? Make it Happen with ULIP

Personal goals and financial protection are two things one strives for. Investing adequately for future needs is important for every investor. While personal goals and financial protection can be dealt with separately, choosing the right investment product is the key for both of them. If you wish to purchase a home or your dream car, you need to make the right financial investment at an appropriate time to fulfill the goals. Unit-Linked Insurance Plan (ULIP) is a valuable investment instrument to help you cater to your financial needs.

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ULIP is a market-linked insurance plan, which is suitable for meeting long-term financial goals. It has multiple features, which make it an apt investment option for achieving personal goals.

Features of ULIP

Your financial needs will vary with age. Your life goals will change as you start earning, get married, and when you have children. For different life stages, the financial needs will increase. ULIP investment has features like multiple fund options, partial withdrawals, and different premium payment modes that make it suitable for your savings cycle. At the end of the lock-in period, you can make tax-free partial withdrawals, and as you reach closer to your goals, you may withdraw partially to meet the purpose.

Based on your requirements, you may opt for policy term options that suit your needs. You can choose from a single premium to a limited premium term. The limited premium term will require you to make the premium payment for a particular period, but the policy term could be longer. ULIP plan also has a top-up policy where you can avail of additional coverage with a higher premium. It will help increase the life cover at a low cost. They are usually charged at 1-2 percent, much lower than the premium originally committed. You will be able to buy additional units at a comparatively lower cost. If you buy a new ULIP, you will end up paying much more, which makes it a wiser decision to buy a top-up that increases coverage at a lower average cost.

How to plan your ULIP investment

Plan your ULIP investment based on your financial goals. You can choose the systematic mode for investing in ULIP. Based on your long-term financial goals, you need to estimate the amount you require to meet the same. Consider the impact of inflation and determine your insurance requirement. Take each goal systematically and determine the insurance amount. Based on the sum assured, consider the premium you need to put in to meet the requirement. The minimum sum assured should be ten times the premium, but you can also take coverage of 15-20 times of the premium for life goals.

How does the fund work?

The premium paid is invested into one or more funds is a ULIP. Most ULIPs have five to nine fund options with different asset allocations between debt and equity. Inequity funds, there could be large-cap and mid-cap options. Equity funds also have mid-cap options with thematic exposure. In debt fund options, there are liquid, short-term, and long-term debt funds to choose from. You are free to switch between the funds, and there will be no tax liability on the same. However, for the achievement of long-term goals, it is advised not to shift the funds repeatedly. It isn’t easy to time the market, and every time the market moves a few points up or down, it does not call for a switch in the fund. You could end up making a wrong move with a switch when the market is highly volatile.

For your long-term goals, say goals that are ten years away, you need to opt for large-cap funds as they invest in blue chip companies and are less volatile. You can choose diversified funds in ULIPs as well. When you are closer to your goal, you can shift from equity to debt funds to bring down the volatility. Doing this will reduce the risk attached to your investment and reach closer to the goal. Many ULIPs offer tools that ensure your investment is linked to your life stage. At a younger age, the premium allocation will be higher inequity, and as you age, the same will reduce and move into debt funds.

It is not important to invest in different ULIPs to meet different goals. If you choose the right ULIP and use it well, you can meet all your goals at different life stages. Each new purchase will have an administrative cost associated with it, and this can be avoided if you have all your investment into one ULIP. It is also easier to manage one investment as compared to different ULIPs. The transparency and flexibility associated with ULIPs make it an ideal investment option. Research the best ULIP plan in India and consider whether it meets your financial needs. However, you need to buy it for the right reasons and choose the tenure wisely. Based on your long-term goals, you can make a timely investment in the form of SIP and reach closer to achieve those goals. With ULIP, you will be able to fulfill your goals and gain financial protection over the years.

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