ULIP plans are one of the most sought-after products for individuals who wish to build wealth. With a ULIP plan, you can protect your loved ones and build wealth simultaneously. They are ideal options for achieving your financial goals in the long term.
To ensure the features of ULIP work to your benefit, you can follow certain tips to maximize the returns you earn through the investment plan.
Tips for Getting Better Returns with ULIP Investment Plans:
- Use the switching option to your benefit:
The ULIP plan offers policyholders the ability to switch between funds during the investment tenure. For example, you can use the ability to switch between equity and debt funds based on the market’s performance. In a bullish market, you can move to an equity fund investment to earn profits in the market. In a bearish market, you can move to a debt fund investment to ensure your profits don’t get impacted heavily by the fluctuations in the market. Following this strategy will help you earn stable and consistent profits through your ULIP investment.
- Maximize the power of compounding:
The power of compounding helps you earn interest on interest as the ULIP investment plan comes with a lock-in period of five years. Therefore, it is better to choose a long-term investment to ensure you earn a decent amount of profit through the benefit of compounding. For instance, when you opt for an investment tenure of 10 or 15 years, your investment is exposed to the market for a long tenure which helps you grow your investment exponentially.
- Optimize asset allocation:
An excellent way to maximize your ULIP returns through investment is by spreading your investment across different asset classes. This will help you build a diversified portfolio. If there is a loss in a particular asset class, it can be adjusted by the profits earned on the different asset classes. This way, the risk is spread across different investments. If you follow the correct asset allocation strategy, you can accurately identify the risk to return ratio on your investment portfolio. Along with this, investing in different asset classes can protect you from the losses you may incur if your investment is entirely in a single asset class.
- Invest with a disciplined approach:
When you’re invested in a ULIP plan, you must ensure you keep up with the premium payments. Making the premium payments on time will help you ensure your policy stays active and helps you build a habit of saving. Along with this, many insurers like Tata AIA offer loyalty rewards to policyholders through the Tata AIA life insurance plans. Therefore, keeping up with the premium payments on a ULIP plan will help you build a habit of saving and get loyalty rewards if your insurer offers it.
- Align investment with a goal:
When you align the investment with a goal, you have a target, and you can work towards achieving the target. With this approach, you can adjust your investment based on your financial objective.
However, when it comes to maximizing your returns, you must also learn about the taxation rules. As per the rules set during the Budget 2021, if you’re paying upto ₹2.5lakhs as premiums annually in a ULIP, the returns you gain aren’t taxable. However, if the premium amount in a year goes above ₹2.5 lakhs, the returns will be treated as capital gains and they will be taxed accordingly and you won’t get the ULIP tax benefit.
While following these steps can help you maximize your earnings, it is important to invest in a suitable ULIP plan. Therefore, to purchase a suitable ULIP plan, you can follow the tips given below:
- Select a suitable amount of life protection: It will help your family get adequate financial protection during an unfortunate event.
- Identify your investment goals: With a clear idea about your investment goals, you can plan your investment accordingly.
- Learn about your risk profile: You must align your ULIP investment as per your risk profile.
- Analyze historical fund performance: You must analyze the fund’s historical performance, as it will help you get a clear idea about whether the fund is an optimal investment option or not.
- Use a ULIP return calculator: Insurers provide these calculators to help customers calculate the ULIP returns. This way, you can plan your investment for the future.
Thus, ULIP plans can offer you the dual benefit of insurance coverage and wealth creation. As a result, you can achieve your investment goals and protect your loved ones. To ensure the ULIP policy works to your benefit, you can follow certain tips. These tips will help you maximize the returns you earn through the plan.