As with the mutual funds that are being recommended by every other financial coach, ULIPs frightened even today to be included in one's kitty due to prevailing stereotypes around the instrument can also help in wealth creation. And this is because of the multiple revamps in the product which has rendered the option more cost-effective as well as return-efficient.
And so herein, prospective investors need to shrug off the earlier assumptions regarding the product which were primarily rooted due to product misspelling and lack of transparency.
How ULIPs as an investment product has changed over the years?
ULIPs which were earlier ditched by market participants are now increasingly invested in and the result is obvious with an increasing growth of money coming into the instrument. The new age or 4th generation ULIPs as they are being referred to are touted as good enough products to provide reasonable returns at low costs.
The earlier hefty charges for ULIPs which ate into investors' money have been now withdrawn and now IRDAI ensures that the product charges associated with ULIPs are at minimal. And so overall charges restricted at 2.25% for policies of duration above 10 years, out of these fund management charges are further capped at 1.25%.
Investors through the product can get a mix of insurance and wealth creation benefit and herein the feature of redirection and switching of funds come into play. This needs acumen from the side of the investor as based on the market he needs to make the switches such that the market strides come to his or her advantage. Say, when the markets are climbing, funds need a shift to the equities and otherwise.
Lock in period of 5 years maintains continuity of investment
Individuals with financial goals tied to the product need continuance and discipline and this is what the ULIPs offer with their 5-years mandatory lock-in and thus the power of compounding with principal money reinvested year after year helps to achieve that long term goal. And as per experts if investors stay put in the product, ULIPs have a record of providing 12-15% for longer investment terms.
Retirement planning with ULIPs
Because of a low cost of just 1.5%, ULIPs with investment of Rs. 5000 for a month for next 30 years can give a post tax return of Rs. 75 lakh, with annual growth of 8%.
LTCG exemption on ULIPs is another plus
The product hence is capable to meet long term wealth creation needs of an investor and this is further made a compelling proposition with the LTCG exemption.
Here is another positive, we can highlight for ULIPs is that the online version of ULIPs provides insurance element built into the product at no cost due to zero mortality charges.
So, all in all, the ULIP in its true sense is able to give us all the benefits that any investment instrument for that matter should be doing. And the need of the hour is to understand the novelty in the product along with its flexibility that offers re-allocation with no charges.