Best ULIP Funds in India - Everything You Need to Know

Best ULIP Funds in India - Everything You Need to Know

Unit Linked Insurance Plan (ULIP) is a unique life insurance policy since it combines the benefits of insurance and investment in a single financial instrument. A policy holder must make premium payments at predetermined intervals. A portion of this premium amount is used to provide insurance coverage. The remaining amount is used for the investment aspect by parking them in different equity and debt instruments.

How Does a ULIP Work?

A ULIP is a long-term investing option that allows you to participate in a wide range of market-related instruments. Hence, this investment plan is affected by market volatility. So, depending on your risk tolerance and investment goals, you can invest in a ULIP plan accordingly.

Apart from this, a ULIP plan calculator can help you evaluate the premium rates that you need to pay as well as the predicted returns. This can enable you to make a sound financial plan, in the larger sense.

Let's look at the benefits of ULIPs and understand the best way you can use it to your advantage.

1. Possibility of High Returns

A unit-linked insurance policy (ULIP) is a plan that allows you to earn profits on your investment. However, it is important to remember that these investments are associated with varying degrees of risk. Hence, it is important to understand your risk appetite in order to invest in the right funds and keep balanced expectations in terms of return.

2. Investment and Life Cover

Unit-linked insurance plans can help you establish a financial safety net over yourself and your family members by allocating a part of the payment to market-linked products and the remainder to offer life insurance coverage.

3. Adaptability

Top performing ULIP funds help you achieve your investment goals by letting you invest in different funds, subject to your risk tolerance and investment objective. Some plans also allow you to make partial withdrawals from the plan once the 5-year lock-in period is over.

4. Option to Change Life Cover  

You can choose the life cover amount i.e., the sum assured of the ULIP at the time of purchasing the policy. However, this amount may not be sufficient as you move through different stages of life such as marriage, childbirth, etc. To accommodate this need, some insurance providers allow investors to increase the sum assured of the ULIPs at a later stage.

5. Availability of Riders

Riders are available with most insurance policies as an additional feature that can enhance the protection offered by the policy. Depending on the policy and the insurance provider, you can choose from a variety of riders and get the additional coverage upon paying a nominal additional premium.

6. Tax Advantages

The premiums you pay for a ULIP plan come with tax benefits. Under Section 80C of the Income Tax Act of 1961, you can get a tax deduction of up to and aggregate of Rs. 1.5 lakh per annum on the premiums paid. Along with this, the maturity benefit of the Unit Linked Insurance Plan is tax-free under Section 10(10D) of the Income Tax Act 1961. However, tax benefits are as per prevailing tax laws and are subject to change from time to time.

How to Choose the Best ULIP Plans?

After you've figured out what a ULIP plan is, you can begin shortlisting the best ULIP plans available in the market to suit your needs. It is in your best interest to research and compare policies to get the best policy. Here are some important considerations to make while selecting the best ULIP plan :

  • Examine Your Objectives
  • Select the Appropriate Amount of Life Insurance Coverage
  • Keep Your Money Invested for A Longer Period of Time
  • Take advantage of the tax benefits under Sections 80C and 10(10D) of the Income Tax Act 1961.

Who Should Invest in ULIP Plans?

1. Those Who Wish to Keep a Close Eye on Their Investment

A ULIP plan enables you to keep a close eye on your investments. Doing so can also help you determine if you need to use the switch fund feature of the policy. This feature allows you to change capital allocation across funds to better suit your investment goal. Essentially, this means the investor has more control and say over their financial planning.

2. People with Different Risk Appetites

ULIP policies provide a wide range of fund alternatives, each with a different risk-return profile. As a result, it is important to first assess your risk-appetite and then identify instruments that are aligned with it. This is important because it will help you keep reasonable return expectations from the investment.

3. Those Looking for a Medium to Long-Term Investment

A policyholder who is prepared to invest for a long time can select a ULIP plan since they offer the best results when the money is kept invested for an extended period.

ULIP Fund Options

Let’s look at a few popular investment possibilities with ULIP plans :

a) Equity Mutual Funds

The allotted investment amount in a ULIP is used to acquire units in a mutual fund that have a Net Asset Value (or NAV) connected with them. The NAV of a Fund is the price per unit in the Fund. Since mutual funds are market-linked, these investments involve a significant inherent risk due to market changes.

b) Debt Investment Funds

When your money is invested in debt funds, it is allocated among instruments such as debentures and government bonds. Generally, these are considered less risky than equity funds. However, it is important to note that the returns also vary, if you compare it to equity funds. To put it simply, lower the risk, lesser the possibility of big returns.

c) Balanced or Hybrid Funds

These are developed for ULIP plans to enable capital growth while balancing the risk factor. This is achieved by investing the money in a mixed balance of equity and debt funds.

What are ULIP Calculators & How Do They Help?

Once you understand what a ULIP plan is and how it operates, the next step is to evaluate the amount of investments you need to make according to your financial profile. Before purchasing a ULIP, you can use a ULIP Calculator to analyse and assess your options. This is a helpful tool that aids in determining the investment and maturity amount based on your profile, risk tolerance and investment goals. To assess your potential returns from a ULIP plan, simply enter basic information about yourself and your investment preferences such as the amount, premium payment frequency and investment duration. Once this is done, the ULIP calculator will display the suitable life cover and investment returns based on your profile.

Disclaimer:

Note- IN ULIP POLICIES, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER

Unit Linked Life Insurance products are different from the traditional products and are subject to market risks.

The premium paid in Unit Linked Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions.

Please know the associated risk and applicable charges from your Insurance Advisor or the intermediary or the policy document issued by the insurance company.

Suggested Plans

Bharti AXA Life Guaranteed Income Pro

  • A Non-Linked, Non-Participating Individual Life Insurance Savings Plan
  • 4 Income options to choose
  • Guaranteed 10% Addition of Annualised Premium (as per the terms and conditions of the policy)
  • Get all your premiums back at the end of the payout period under Long Term Income and Deferred Income variants
  • Flexibility to choose premium payment term or policy term

Bharti AXA Life Grow Wealth

  • Flexibility in Investment Tenure T
  • Single Life/Joint Life Option
  • Grow your wealth further with Loyalty Additions
  • Multiple Fund Options to suit your investment needs and zero premium allocation charges
  • Tax benefits

FAQs

How Does a ULIP plan work?

A Unit Linked Insurance Plan (ULIP) is a category of life insurance plan provided by insurance firms. These schemes combine the advantages of life insurance with investment earnings.

By letting you park your money in a number of equities and debt fund alternatives, a ULIP plan gives capital market-linked returns on your investment.

What Do I Need to Know When Investing in a ULIP?

When purchasing a ULIP plan, remember to keep these considerations in mind :

  • Charges applicable, including surrender charges
  • investment funds accessible.
  • Advantages and features
  • Exclusions and limitations
  • Consequences of a lapsed ULIP plan
  • Additional disclosures

What is the NAV of a ULIP plan?

The NAV (or Net Asset Worth) of a ULIP plan is the complete value of the units held after subtracting the value of the liabilities. Simply put, NAV is determined after liabilities like as marketing charges, operational expenses and management fees have been deducted.