Tips to Getter Better Returns with Your ULIP Investment

Unit Linked Investment Plans (ULIPs) combine the benefit of life insurance with wealth creation through capital market investments. By investing in ULIPs, you not only get tax benefits on the premium payments towards the life insurance plan, but also generate returns from favorable market movements. If you’re invested for a long period, you increase the chances of good returns. Here are some ways to maximize returns from your ULIP investment.

Align with Your Long-Term Goals

ULIPs are ideal for long-term wealth creation. So, think about your long-term goals, such as your child’s higher education or marriage, saving for retirement, or going on a long-haul international holiday. Then, consider the number of years remaining to achieve the goals. Choose a ULIP policy for the right duration and select the fund options accordingly. Let’s say your child will become of marriageable age in 10 years, you should consider choosing a ULIP plan with a 10-year policy term.

Stay Invested & Enjoy the Magic of Compounding

ULIPs typically have a lock-in period of 5 years. Unless there’s a financial emergency, it’s better not to withdraw your funds after the end of the lock-in period. Staying invested for longer can help you benefit from the power of compounding. That is, your returns are reinvested to help the total amount grow exponentially. So, if you have a long-term goal, you can benefit by staying invested for 10-15 years.

Optimise Asset Allocation

You can boost your ULIP returns by spreading your investments across various asset classes. A diversified portfolio helps to mitigate the risks associated with one specific sector or asset class. With ULIP plans like Edelweiss Tokio Life Insurance’s Dream Plus-sized Goals plan, you have the choice of investing in as many as seven diverse funds.

Do consider your risk tolerance. If you’re young, you may be able to invest more aggressively. If your retirement is approaching, you can save money by investing in more conservative options.

Most importantly, ULIP plans allow you to switch from one asset class to another to increase your returns. You can use this facility to your advantage. When share prices are on an uptrend, you can invest in equities to reap gains. When the market is slumping, you can switch to less-risky debt funds.

Timing the Market

If you are someone who loves to keep a track of all things market, then this is the best opportunity for you to benefit from the market position. Staying abreast of leading and lagging indicators, global geopolitical situations and crude oil prices helps you take timely action to maximize your gains.

Maximise Your Tax Benefits

ULIP can be a great tax-saving tool. The premium paid towards a ULIP policy help you in saving tax under Section 80(C) of the Income Tax Act of 1961. If the total premiums paid in a year are less than 2.5 lakhs, the maturity benefits are tax exempt under Section 10 (10D).

While the investment aspect of ULIPs is important, one must not ignore the life insurance component. Make sure you have a substantial sum assured, so that your loved ones can receive adequate financial support even in your absence.