The Young Professionals Guide to ULIP In India

In India, the millennials from about 34% of the total popular and 46% of the workforce. Being one of the young nations in the world, the millennials are currently driving the economy with their purchases. But, do these youngsters save and invest for the future?

Research suggest that a vast percentage of the millennial population invests their hard-earned money in several financial instruments, but mostly in risk-free instruments. In fact, studies indicate that the youngsters take lesser risk than their older counterparts. In such a scenario, the ULIP policy could be one of the best investment plans for the youngsters.

If you are a youngster, and wish to invest in ULIP, the following guide will be useful.

What is ULIP?

A unit linked insurance plan is a unique financial instrument that provides both life protection and investment opportunity under a single umbrella. While ULIP is primarily a life insurance policy, a part of the premium you pay for the same is invested in various assets to generate returns. The funds are allocated based on your risk appetite and financial goal. Since it takes time to accumulate a large corpus, ULIPs are an excellent investment choice to be disciplined with your savings regularly.

Who should invest in ULIPs?

ULIPs are an ideal choice for almost everyone. But, you can invest in this unique instrument if –

  • You have specific financial goals

As a youngster, you may be ambition and have several goals like buying a new home, higher education, wedding, etc. A ULIP plan is an excellent way to save for your future goals. Since it comes with a lock-in period of five years, you must stay invested for the term and fulfil your long-term goals.

  • You have low-risk appetite

ULIPs are highly flexible in terms of choosing and switching the investments. You can invest in different assets including debt funds, equity funds, hybrid funds, bonds, stocks, etc. You can also define a specific percentage of the investible funds to be allocated to different assets. Thus, if you have a low-risk appetite, you can invest a major portion of the funds in debt or hybrid funds or in secured instruments like government bonds and generate valuable returns over a period.

  • You stay updated with market trends

One of the key to maximize returns from ULIP is to stay updated with the latest market trends and movements. You must constantly check the funds’ performance and make necessary adjustments to fund allocation. This will help minimise the loss and maximise returns potential.

Benefits of Investing in ULIPs

  • ULIPs are one of the best investment options for youngsters because they offer flexibility in terms of premium payments. You can choose monthly, quarterly, half-yearly or annual premium payment mode.
  • ULIPs offer better returns than the traditional investment instruments like bank FD and savings account. The compound interest returns means that the returns generated are reinvested for higher returns in the future.
  • Another significant benefit is the flexibility to switch the funds. You can switch your investment in debt funds to equities or vice-versa at any point based on the market condition and generate maximum returns.
  • The mandatory five-year lock-in period allows you to stay disciplined with your investment and stay invested for a longer period. It helps you get into the habit of regular savings.
  • ULIPs are highly tax-efficient. The premium you pay is eligible for tax deduction up to Rs. 1.5 lakhs in a financial year under Section 80C of the IT Act. Also, the maturity proceeds that you or your nominee may receive is completely tax-free.

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