Unit Linked Insurance Plan, better known by its acronym, ULIP, is one of the most popular forms of life insurance policies in India. Many people prefer buying ULIP primarily because it offers dual benefits of insurance protection and wealth creation. It also provides valuable returns on your investment without taking too much risk while saving taxes. However, to maximise your returns on ULIP, you must consider a few factors, which are discussed below.
Stay invested for long to benefit from the power of compounding
ULIPs come with a lock-in period of five years. Therefore, it can be the perfect choice of investment for your long-term goals. Let us assume you stay invested for 15 years or more, you can immensely benefit from the power of compounding.
It simply implies that every year the principal amount and returns you earn will be reinvested, and you can get higher returns in subsequent years. Thus, your savings grow faster, and you can accumulate a substantial corpus.
If you are investing in a ULIP policy to accomplish a specific goal, like building a retirement corpus or buying a new home, then it is better to stay invested for about 10-15 years. Historically, ULIPs have offered 12% to 15% returns in the long term.
Have a goal-based investment approach
One of the best ways to get valuable returns from your investment in ULIP policy is to set a goal in advance. This approach allows you to stay invested for long, choose the right fund options, and save systematically. For example, if you are saving for your child’s marriage, then you may stay invested for at least 10 years, and you can choose the policy duration accordingly.
Also, depending on the returns you expect from your investment, you can choose the right funds to invest in. If you want to grow your money faster and don’t mind taking a few risks, then you can invest a significant portion of the funds in equity instruments. But if you want stable returns, then you can invest more in debt funds.
Goal-based investing is an excellent way to improve returns and stay committed to your long-term goals.
Leverage the fund switch option
When you invest in a ULIP policy, you get the flexibility to switch from one fund to another a few times in a year without incurring any fund switch charges. This can help you increase your returns if you leverage the option correctly.
When you invest, study the market conditions carefully, know about the past performance of the funds, and switch from one fund to another to increase your earnings.
Take advantage of the ULIP tax benefits
Like other life insurance products, ULIPs allow you to enjoy valuable tax benefits. The premium you pay for the policy is eligible for deduction under Section 80C of the Indian Income Tax Act. Also, the maturity benefits you receive qualify for the tax deduction. Thus, the tax benefits help you increase your savings pool and maximise your returns.
Final Word
ULIP is an excellent investment choice to build a valuable corpus for your future goals as it provides market-linked returns. All this while assuring financial protection to your family if something happens to you. Now that you are aware of the way to increase ULIP returns, use them to your advantage and accomplish your financial goals.
