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Things you need to know about ULIPs before investing in them


You may be advised to invest in a ULIP for good returns over a period of time. But have all your questions about ULIPs been answered yet?

While inflation rises steadily and living costs continue to increase, it is time to take stock of your finances and answer the question: 'Am I making the best use of my income?'

While most people look to save money for the future, often enough the savings corpus does not amount to much in the long run. It may also become difficult to save money regularly in the face of several competing responsibilities. Hence, you must look to invest your money so as to grow it. An excellent investment avenue is the Unit Linked Insurance Plan (ULIP). Let's examine how a ULIP helps a person create wealth for both personal and professional purposes.

Q: Why should I invest in Unit Linked Insurance?
A Unit Linked Plan offers the protection of insurance with the potential for growth on investment over the long run. Your investment will be diverted into two components – one component pays the premium, while the other is invested by the insurer in equities. The invested money buys units of mutual funds, hence the name Unit Linked Insurance Plan.
 
Q: In which kind of funds will my money be invested?
ULIPs invest in fixed interest bonds, equity funds, money market funds and balanced funds. If you feel that your money would produce better returns in a certain asset class, you are free to choose the funds. This way, you have control over the returns on investment.
 
Q: How can I map the returns on my Unit Linked Insurance?
You can't quantify the returns because they are dependent on the performance of the fund and market factors. Investment advisors will tell you that up to 7% returns on the investment is considered normal.
 
Q: I don't understand market trends but I want to invest in ULIPs. How can I do this?
You can enlist the services of a fund manager to handle your portfolio. The manager studies the markets, assesses trends and advises you on how much money to invest in the best possible funds for good returns. In short, the manager does the 'study' part for you, but be sure to work with one whose investment philosophy aligns with yours.
 
Q: Is it possible to know the fund value on a daily basis?
Your insurer may provide daily and historical NAVs for you to study the performance of the fund on a daily basis. The information is available on the insurer's website and is updated per business day. It helps you track the fund's growth and projected future performance.
 
Q: What are the main benefits of a ULIP?
Unit Linked Plans offer death benefits, maturity benefits and tax benefits of up to Rs 1.5 lakh under Sec 80C of the Income Tax Act, 1961.
 
Q: What are the conditions under which I can lose money in a ULIP?
You can lose a component of your returns if you withdraw funds partially against the ULIP before the maturity date. Normally, there is a lock-in period of five years from the start of the ULIP. You can also surrender the Unit Linked Insurance Policy after the lock-in period. The insurer will deduct stamp duty and other expenses incurred for issuing the policy and maintaining it.