Understanding ULIP Returns in 10 Years

Understanding ULIPs

A unit-linked insurance plan is an investment instrument that provides both life cover and market-linked returns through a single investment. It is a hybrid investment plan where a portion of the premium you pay is allocated towards building life cover, and the remaining portion is invested in a fund of your choice, such as a debt fund or an equity fund.

This way, you are not only securing financial stability but also building a safety net for your loved ones for times when you are not around.

ULIPs for 10 Years: Factors Affecting the Returns

Understanding the factors that typically affect ULIP returns can not only help you make an informed decision but also help you learn ways to expand your profits through the investment.

ULIP Charges

Investing in ULIP plans incurs several charges, including fund management, administration, fund switching, discontinuation, and mortality charges. These charges vary depending on the insurance company you purchased the plan from. Although the charges may appear minimal, they can affect your returns in the long run.

Fund Switches

Insurance companies usually allow you to switch your investment from one fund to another. However, this switching can come with certain charges that you must be aware of to avoid negatively impacting your returns in the long run.

Market Trends

Under ULIPs, a portion of your premium is invested in the fund of your choice; therefore, market trends play a significant role in determining the returns on your investment. Choosing wisely amongst equity, debt, hybrid, etc, should be a priority. Be sure to review the historical performance of different funds to make an informed decision.

Tax Liabilities

Returns under your ULIP are also affected by tax implications. Here’s what you need to know about tax liabilities under ULIPs:

• Premiums paid towards a ULIP are eligible for tax deductions under section 80 C of the Income Tax Act.
• Returns that you receive upon the maturity of your plan are also eligible for tax exemptions under section 10 (10D) of the Income Tax Act.

Note: Benefits received under ULIP after 1st February, 2021, are liable for taxes under “capital gains” if the annual premium is more than ₹2,50,000.

Lock-In Period

ULIPs have a 5-year lock-in period, which is another key factor affecting returns on your investment. Since the plan keeps you invested for the long term, the market risks eventually even out. Continuing your plan beyond the lock-in period can help in wealth creation in the long run.

ULIP Returns in 10 Years: What You Must Know

Investing in ULIPs is a reliable choice only if you have thoroughly understood the return dynamics. Here’s what you should know about ULIP returns in 10 years:

Average Returns are Impressive

ULIPs are known for offering better returns to investors who are committed to the plan for the long run. ULIPs offer an average annual return of 15% on 10-year plans. However, in the past five years, there have been plans that outperformed market expectations, offering an average of 22%.

Staying Invested for Better Returns

When it comes to choosing a goal-based investment instrument, ULIPs are usually regarded as a reliable choice. This is primarily due to the lock-in period, which fosters a disciplined investment approach, and the investment tends to average out in the long term (10 years or more) to yield better returns.

ULIPs Against Inflation

ULIPs have long been regarded as a reliable instrument to hedge against inflation. While this depends on the type of funds you choose to invest in, ULIPs have the potential to create a stable portfolio for you, even in the face of rising inflation.

Here’s how:

• ULIPs allow you to easily switch between funds to balance out the profit and risk of your investments.
• The plan allows exposure to equity funds that are known for hedging against inflation.
• Since ULIPs are typically designed for long-term investment, you can benefit from the power of compounding against inflation.

Summing Up

Investing in ULIPs, although primarily seen as an insurance plan, has the potential to generate impressive returns, especially for long-term goals. Factors like exposure to multiple funds, impressive average returns, and easy fund switches make ULIPs a smart investment choice in today’s time.

To compare different ULIPs and invest in a reliable one, simply head to Jio Insurance Broking for a seamless experience and quick investment.