The rate of inflation is increasing at a significant pace, and it is becoming difficult for many people to fulfill their basic needs. The expenses are increasing day by day, whereas the income in many cases is stagnant. Salaried people find it challenging to manage the cash flows in case of any financial emergency. However, if they invest wisely in an ideal investment instrument that can help them grow their wealth over time, they can live a stress-free life.
Today, there are many investment options available in the market.So, it can be a tedious task to select a suitable one, primarily if you are investing for the first time. As a beginner, it is advisable to invest in less risky investment avenues. Unit-Linked Insurance Plan (ULIP) can help you secure the financial future of your family as well as build a corpus over time. It is possible as ULIP offers insurance and investment component under a single plan.
In a ULIP investment plan, the premium that you pay is divided intomultiple fund options after the insurer deducts the various associated charges.
Importance of remaining invested for a long period
Staying invested in ULIP with a long-term perspective of 10 to 15 years can grow your wealth exponentially. ULIPs can help you earn around 10 to 12% of returns annually, which is better than most of the financial products. The returns are high compared to instruments like fixeddeposits, Public Provident Fund (PPF), and National Savings Certificate, among others. The expected ULIP returns in 10 years can probably help you to overcome the cost of inflation.
How can ULIP help with wealth creation?
Investments of any kind require proper management and making wise decisions. The same goes for ULIP investment. If you want to make the most out of your ULIP investment plan to generate wealth, here are some factors that you need to take into account:
- Triple benefits
ULIP offers you three benefits under a single plan; these include, life cover, savings, and wealth creation. There is no other investment instrument in the market that can offer such a profitable package. ULIPs have a mandatory lock-in period of five years. So, it helps you to develop a savings habit that is essential for wealth creation.
- Power of compounding
To reap the benefits of the power of compounding, you should stay invested in a ULIP with a long-term horizon. In compounding, the amount that you have earned over time from your investments in equity or debt funds is re-invested to generate surplus wealth over time.
- Fund switching option
The flexibility of switching funds offered by ULIP is one of the best features that can help you maximize your investment returns. You can invest your hard-earned money in equity, debt, or a mixture of both types of funds based on your financial aspirations and risk-bearing capacity. With time, your monetary objectives and risk-taking ability will change. So, you can restructure your investments by shifting from equity to debt funds or vice-versa to re-balance your portfolio. With this, you can make the most of the bearish or bullish market.
- Tax savings
The premium that you pay towards your ULIP investment plan is tax-exempt up to a limit of INR 1.5 lakh per year according toSection 80C of the Income Tax Act, 1961. Additionally, the death benefits or the maturity amount is tax-free under Section 10(10D) of the Act.
With ULIP, you canfulfill your ambitions over the long term. Now, when you know how ULIP can help you generate wealth, it is time to make the most of your investment.