All investment instruments have their uniqueset of advantages to offer. It is vital for investors to be aware ofthe nuances in a particular offering and make informed decisions.
When investing in a Unit Linked Insurance Plan, popularly called ULIP, it is to be borne in mind that ULIP’s being a market linked instrumentwill fetch good returns on a long term basis. The basic advantage of aULIP over other investment instruments is that it offers the twinbenefits of life insurance as well as an investment. Apart from that, there are a number of ways in which ULIP’s can prove to be advantageousover Mutual Funds, Regular Insurance Policies and Fixed Deposits. Let’sanalyze:
ULIP vs MUTUAL FUND
1.Flexibility on Mode of Investment/investment amounts
ULIP provide the flexibility to alter the premium amounts during thepolicy’s tenure. Surplus funds can be used to enhance the contributionthereby ensuring that the funds are gainfully invested. Alternatively, lower payments can be made when faced with a liquidity crunch (thedifference being adjusted in the accumulated value of the ULIP). Thisoption of modifying premium payments at one’s convenience clearly givesULIP an edge over Mutual Funds.
- The cost factor for altering Asset Allocation
In Mutual Funds, shifting the corpus into a debt from the same fundhouse will involve an exit load and/or entry load. On the other hand, in a ULIP, the option to invest across asset classes as per yourconvenience is very cost-effective. Most insurance companies allowshifting the investments across various plans/asset classes either at anominal or no cost. This can prove to be very useful. For example, in abull market when the ULIP investor’s equity component has appreciated, he can book profits by simply transferring the requisite amount to adebt-oriented plan.
- Tax Benefits
ULIP’s qualifyfor tax benefits under Section 80C of the Income Tax Act. This holdsgood for any kind of plan chosen by the investor. In Mutual Funds, onlyinvestments in tax-saving funds (also referred to as equity-linkedsavings schemes) are eligible for Section 80C benefits.
ULIP vs REGULAR INSURANCE POLICY
ULIP’s and Traditional policies both work alike. A part of the premiumis set aside for life cover and the rest is invested in a fund afterdeducting charges.
The main advantage of a ULIP is that theinvestor knows exactly about the break-up of his premium into lifecover, the fees being paid and the amount being invested in a fund. Theperformance of the funds can also be tracked as the returns are linkedto the market performance. On the other hand, in traditional policies, no information about the break-up of charges is shared with theinvestor. He also does not know whether the bonuses paid to him everyyear are all that his fund has made or whether the company is givinghim only a share of the profits. Policies encourage savings whereasULIPs take the investment path and hence have higher growth options.
ULIP vs FIXED DEPOSIT
There is always a degree of risk, however small, involved in a ULIP.Traditionally, investors preferred investing in safer instruments likeFixed Deposits, despite the lower returns. But Fixed Deposits are ableto only beat the inflation.
On the other hand a ULIP is amarket-linked plan with an equity exposure. A plan with an equityexposure for a long term usually consistently gives better returns thanany other asset like Fixed Deposit or Bonds.
WHY CHOOSE Bajaj Allianz iGain AS YOUR ULIP PLAN?
•iGAin is India’s 1st completely online Ulip. It does not have an intermediary – you are the sole beneficiary.
• iGain is a market linked plan that offers market exposure withbuilt-in investment advice. For those who find investing and insuringas Greek and Latin, there is the Wheel Of Life Portfolio Strategy.iGain’s investment officers will select and invest in the appropriatefunds to balance and safeguard your investment.
• From the 11thyear onwards, iGain increases the allocation of units by 2% to enhanceyour investments. So while you pay a 100% premium, 102% of it isinvested.