IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER

Leverage the Power of Compounding with Your ULIP!

Date 07 Jul 2023
Time 5 mins read
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3.2
Rated by 126 readers

We all love to indulge in a little curiosity and wonder about the wealthiest people in the world. It's natural to feel a sense of awe when we see their staggering net worth. But here's an interesting fact: many successful individuals, like Rakesh Jhunjhunwala and Warren Buffett, owe a significant portion of their wealth to the power of compounding.

Compounding is a magical concept in the world of investments. It's a simple yet powerful principle that allows your money to grow exponentially over time. The longer you hold your investments, the greater the potential for growth. Fortunately, your ULIP understands and leverages this magic, which means you need to stay invested to score spectacular returns.

The Scorecard of Compounding:

Let's explore a hypothetical scenario with our beloved heroes, Karan and Arjun, who both decided to invest Rs. 1 lakh per year in a ULIP. Karan withdrew his investment after 10 years, while Arjun kept his investment untouched for an additional 5 years, allowing the interest to be reinvested. Here's the scorecard:

Investment: Rs. 1,00,000 per year for 10 years
Rate of return: 4% per annum

Karan:
Principal Invested: Rs. 10 lakhs
Time Invested: 10 years
Amount invested/ROI: Rs. 10 lakhs/4% p.a
The amount received: Rs. 14.8 lakhs

Arjun:
Principal Invested: Rs. 10 lakhs
Time Invested: 15 years
Amount invested/ROI: Rs. 10 lakhs/4% p.a
The amount received: Rs. 18 lakhs

By keeping the money invested for an additional 5 years, Arjun secured approximately Rs. 3.2 lakhs more.

Let’s understand this with another example where the Rate of Return is 8%.

Investment: Rs. 1,00,000 per year for 10 years
Rate of return: 8% per annum

Karan:
Principal Invested: Rs. 10 lakh
Time Invested: 10 years
Amount invested/ROI: Rs. 10 lakh/8% p.a
The amount received: Rs. 15.65 lakhs

Arjun:
Principal Invested: Rs. 10 lakh
Time Invested: 15 years
Amount invested/ROI: Rs. 10 lakh/8% p.a
The amount received: Rs. 23 lakhs

By keeping the money invested for an additional 5 years, Arjun secured approximately Rs. 7.5 lakh more. This showcases the incredible power of compounding, where time becomes a valuable asset in building wealth.

Reaping the benefits of compounding with your ULIP

Now that you’ve understood how significantly compounding can impact your corpus, it’s time to give yourself a little pat on the back for investing in your ULIP in the first place. Remember, the power of compounding lies in the reinvestment of your returns. As your ULIP investment accumulates over time, the compounding effect becomes more pronounced, leading to significant wealth creation. All you need to do now is stay on the course to let your funds multiply.

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FAQs

How does the power of compounding work in ULIPs?
When you earn returns on your ULIP investments, those returns are reinvested, and they, in turn, earn returns. This creates a snowball effect, where your investments grow exponentially over time.
Why is the power of compounding important in ULIPs?
The power of compounding is important in ULIPs because it helps to maximize returns over the long term. The longer the investment horizon, the greater the potential for returns.
What are the benefits of leveraging the power of compounding in ULIPs?
Leveraging the power of compounding in ULIPs can help investors build wealth over the long term. It can also help investors to achieve their financial goals, such as retirement planning, wealth creation, and legacy planning.
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