From a long time we heard about ULIP(Unit Linked Insurance Plan). Here I want to share some good points on it why is it better from any other investment plans. Earlier Insurance was introduce for covering the Financial loss of a bread earner of the family dies and I think this is known by everyone now a days it is called term insurance which provide support to financial need after death.
And available investment tools are(other than ULIP) Fixed Deposit, Postal Schemes, Mutual Fund and Pension Plans. Lets take them step by step:
Fixed Deposit: Every Bank offers this investment tool. A fixed-income debt security, usually issued by banks. A Fixed Deposit is like loaning the bank your money. In return, they pay you interest. And you get the benefit of Tax Deduction under sec 80C and the benefit of Interest bank specified currently its 8 to 8.50%.
Negative point: Return are taxable as all banks follow the procedure laid down as per Section 194A(4). if your FD earns an interest of over Rs 5, 000 *increased limit to Rs. 10, 000 with effect from 1 June 2007), the bank will deduct tax at the rate of 10 percent plus surcharge and cess.
Post Office Time Deposits: [For deposits made on or after 1st March, 2003]
Period of deposit Rate of interest per annum
1 Year 6.25 per cent
2 Years 6.50 per cent
*3 Years 7.25 per cent
5 Years 7.5 per cent
and you get benefit under Sec 80C.
Negative Point: - Return are Taxable.
Mutual Fund:- A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities(stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund. *
*Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns.
Negative Point:- High Risk & Return are taxable.
Pension Plans:- here you keep paying some amount annually for getting the pension at the age you have decided to get retire on again on the invested amount you can get the benefit of Sec 80C.
Negative Point: - Pension is taxable.
finally ULIP: - It means that the insurance plan is linked with some investment market like Equity, Money Market Debt. that mean the premium you are paying will be invested in these tools. How it is safer and beneficial than other?
well in ULIP first of all you get the benefit of insurance benefir of sec 80C and and after 3 years time you can get 100% surrender value. which means whatever the returns your amount has earned plus invested amount will be given to you.
In a ULIP people say why there are so many types of charges been deducted. Well it is a Investment cum Insurance Plan, Insurance introduced with investment for your benefit only now the question is how? well as we have seen above all investment tools are giving us the benefit of tax under sec 80C but returns are absolute taxable it is not same in ULIP in ULIP your invested amount plus your returns both are tax free just because your investment is having insurance also.
It gives you the facility of securing your investment by providing you switches. Well a ULIP normally will be having more then 3 funds where you can put your money if you have invested in equity mostly and somehow the market goes down you can immediately secure your investment by switching your amount into a debt fund. as when Equity goes down Debt market goes up if Debt market goes down equity goes up.
So overall the benefit in a ULIP is more than any other investment tool you get the Double Tax Benefit, Cover of Insurance & Switches for securing your money invested. Yes it has charges like Allocation, Fund Management Charges, Mortality Charges and Policy Admin Charges.
You can minimize these charges by searching for some ULIP where these charges are low. There are some plan which not having Allocation charges but it will be having all other charges. And to lower these charges further you have to plan accordingly as Mortality chares go high when you are asking for a higher life cover Amount(Sum Assured) try to get it as low as possible. if your age is 40-50 try to have minimum sum assured. for person of age 25-40 can have higher sum assured as he will be having lower death risk. Mortality work on this function only.
And after the a period when your ingested amount plus the returns get equals to the sum assured amount mortality charges will get nill as bank will now pay you the fund value on maturity or at any mishap. As far as you have seen it is really a good step to invest in ULIP, try to look for good ULIP with lower charges. do not go on other people what they say first please find out yourself then take the step.