ULIPs: Systematic investment and tax savings simplified!
Wed, 10 Feb 2016 20:00:16 -0700
What makes ULIP a very attractive proposition when it comes to investing is that it offers dual tax benefits
TAGS: INCOME TAX, ELSS, ULIP, INSURANCE, MUTUAL FUND
Though no one can predict the future, one thing is sure; tide and time never wait for anyone! But that doesn’t mean we sit helpless and take what fate bestows upon us. Definitely not!

You may have weaved dreams for yourself and for your loved ones too. But what if fate plays its own tricks and spoils your future planning? How would you ensure that your children pursue their dream career even in your absence? Or, how would you financially secure your life post retirement? You need a good financial plan that helps you to achieve these dreams, while safeguarding them against any mishap. The solution to this is Unit-Linked Insurance Plan or ULIP. No matters what goals you have, a ULIP helps in achieving them while keeping you protected against unforeseen events.

What is a ULIP?
ULIPs are an investment option in which part of the premium paid is invested in providing life over and the other part is invested in funds. These funds can be equity oriented or debt oriented or balanced funds. It is an insurance tool, which provides life cover and investment both simultaneously.

What makes ULIP a very attractive proposition when it comes to investing is that it offers dual tax benefits. Not only are the premiums paid eligible for tax deduction under section 80C, but the returns gained on maturity are also exempt from tax under section 10(10D).

How does a ULIP act as an SIP?
An SIP or systematic investment plan allows policy holders to contribute a fixed amount in the funds at regular intervals to create enough wealth that will help her to achieve his/her financial goal. The period can be monthly, quarterly or yearly as per the policyholder’s choice. ULIPs have the flexibility of letting the investor choose the payment frequency he is comfortable with. Monthly payment with Standing Instructions given to the bank is by far the easiest way of letting your ULIP act as an SIP for you.

Key Benefits of ULIPs as an SIP:

Rupees cost Averaging: You may remember when you were a child, your parents and teachers used to tell you to read thoroughly for the exams and not bank on a few questions being asked only. The purpose was to save you from the risk of failure, as you never know, which question will come in your exam.

Rupees cost average works in a similar manner. It is clear now that through SIP, you invest a particular amount of money at regular intervals. Now the market is uncertain. There are times when the market is performing well and then there are times when it does not perform well. Let’s say you invest 4000 INR monthly to your systematic ULIP.

When the markets are performing well, and unit prices are high, fewer units will be purchased, when the markets do not perform well and unit prices fall, you more units will be purchased for the same amount of money invested. This makes sure that you avoid the eternal trap of “waiting for the best time to invest”.

Rupee cost averaging makes sure that your costs are averaged out over the long term which helps you tide over short term market fluctuations.

Free of market timing: The best of minds in the financial space will not be able to accurately predict future market movements. An SIP is testimony to the famous saying “the best time to invest is now”. With an SIP you don’t have to worry about “timing the market” at all. In fact, what makes a ULIP an even better SIP option is that you can switch your money between debt and equity as you please.

This ensures that you don’t have to worry about the equity markets having a bad phase or the debt funds not giving you as much returns as you had hoped for.

The Power of Compounding: A very simple mantra tells you that longer is the investment period & higher the frequency of investment, higher is the profit. Let’s understand this. You can either invest Rs. 1000 every month for the year or Rs 12,000 as a onetime yearly investment.

When you invest every month the compounding also happens monthly and that means that at the end of the year, you get much more than what you would have got than if you had invested yearly. SIPs using the monthly investing mode proves to be the most profitable when you factor in the power of compounding.

The systematic investment option has made the ULIPs a profitable investment option for the longer term. The key is to buy a ULIP for a long term and enjoy the benefits without worrying about market risk. We live in an age where everything from houses to fruits can be brought online. Setting up your ULIP plan as an SIP can also be done online.

It hardly takes 10 minutes to do so and you are off and running!
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