Saving and investing help one achieve their long-term and short-term goals. In today’s environment, making suitable investment choices can help meet bigger goals, like buying a house, travelling, or building a retirement corpus. FThe rule is not to put all your eggs in one basket. For investments, Several financial instruments are available these days where one can put their money and generate phenomenal returns. Diversifying your investments based on risk profile will ensure that you do not miss on high risks investments that offer high returns but also that the risk is balanced out with low-risk investments. When you are investing to secure your future, it is crucial to ensure the life of your dependents, too. If you lose your life suddenly, your loved ones should have a financial backup to rely on. This is exactly what life insurance does. A perfect financial instrument would be that it has both investment and insurance components. This is precisely what a Unit Linked Insurance Plan (ULIP) is. It is a type of life insurance with an investment element to it.
Meaning of ULIP
ULIP is a type of life insurance; just like any other life insurance policy, you have to pay premiums to keep your ULIP plan active. The tips that you pay are used towards providing you with a life cover and generating wealth via investments. The life cover aspect ensures that if you suddenly lose your life during the duration of the policy, your nominee will receive the sum assured. If you survive the procedure, you will receive a maturity amount comprising your investments and their returns.
When you are investing in a ULIP, you get the flexibility of allocating funds and choosing your investments. Based on your ability to take risks, there are three types of ULIP that most insurance companies offer. They are equity, debt, and balanced funds. If you will take risks, investing in the equity market would be ideal, as they do have high stakes but also offer high returns. Here, the funds are directly invested in equity markets. If you want a low-risk ULIP portfolio, debt funds would be the way to go, as they are low-risk investments. Your money in debt funds is invested in equity and corporate bonds. The returns here are lower than equity funds. If you want to invest in equity while balancing out the risk, you can invest in balanced funds. Here, half of the fund is allocated in equity funds, and the other half is allotted to debt funds. The risk here is balanced out, and moderate returns are generated. One of the most significant benefits of ULIP is that it allows buyers to switch between funds of their choice. You can switch between equity and debt funds and vice versa according to the market fluctuations and your risk appetite.
ULIPs for short term
Short-term investment means different tenures for different investors. Usually, most of them consider the short term less than five years. For ULIP, there is a lock-in period of five years. After that period, you can avail free partial withdrawals. This is one of the unique ULIP benefits handy when one urgently needs funds. However, for investment in ULIP, tenure matters a lot. It teaches the habit of savings and will help you accumulate wealth for five years. After the lock-in period, if you need the funds to fulfill your short-term goals, you can access funds from your ULIP plan. Your ULIP would have generated considerable returns by preserving your funds in five years. Also, since ULIPs are recurring investments, they create the habit of savings.
While ULIP as an investment can provide returns in the short term, it is always better to be in for the long haul. With the power of compounding and switching between different types of ULIP fund allocation, one can generate huge returns in the long haul. It enables wealth creation in the long haul and is most likely to outperform other insurances with savings or investment components. Factoring compounding, diversification of funds, and tax-saving benefits make ULIP the perfect investment option for the long haul.