A unit-linked insurance plan (ULIP) is an insurance-cum-investment tool that can help earn returns. The returns can be used to finance various long-term goals like higher studies, marriage, travels, home renovation, wedding costs, retirement and more. After choosing the best ULIP plan, you must follow some other steps to boost your returns. Here are a few useful tips.
Fix Your Financial Goals
Set your goals well in advance. This can give you maximum time to invest, choose the right investment tenure and suitable funds, and save in a disciplined way to meet your target. Say, you’re saving for your kid’s higher studies that he’ll pursue 10 years later. Then you can choose a 10-year ULIP.
Invest for a Long Term
A ULIP policy is a long-term investment scheme that yields optimum returns if you invest over a long duration. Although it has a 5-year lock-in period, try not to withdraw your money after that. This can affect your overall earnings considerably. So, consider this option only if there’s a financial emergency. The longer you stay invested, you can grow your money due to the power of compounding.
This is as significant as choosing the best ULIP plan. Some insurance providers reward consistent and long-term investors by repaying them some fees like fund management fees, surrender charges, policy administration charges, mortality charges and more. The insurer may waive off these charges if you avoid making complete or partial withdrawals from your plan. This can add to your total returns.
Switch Between Funds As and When Needed
The best ULIP plans allow you to switch between funds several times in a year. Based on the market’s ups and downs, you can switch to the right fund to increase your earnings. In a bear market, you can switch to equities. When share prices start rising, you can move to debt funds.
Consider Your Risk Appetite
As your age and responsibilities increase, your risk appetite can also differ. Young people can afford to invest aggressively. As you approach retirement, you may move to more conservative investments to protect your capital. A ULIP policy offers fund-switching to suit your risk appetite at any given time. If your risk tolerance is minimal, you can add debt funds to your portfolio. Once your risk appetite goes up, you can switch to equity funds to achieve better returns. If you want your portfolio to have both high and low-risk options, consider balanced/hybrid funds. With moderate risk, this can help you earn moderate returns.
Leverage ULIP Tax Savings
Under Income Tax Act, Section 80C, you can claim a tax deduction on premium payments toward a ULIP policy. According to Section 10 (10D), you can avail tax exemption once the plan matures if the net annual premiums are below ₹2,50,000. By leveraging these tax benefits, you can maximise your returns.
Go for the best ULIP plan from a reputed insurance company in India. Then follow the above tips to optimise your returns. Remember to read the policy terms and conditions carefully before investing.