Every individual has specific goals in mind that usually require money to be fulfilled. Be it long-term goals like buying a house or short-term goals like travelling, both require funds to be fulfilled. Living a paycheck-to-paycheck life without proper investments makes it difficult to meet such goals. It is rather important to seek investment opportunities, research about them, and then invest in them to gain maximum returns. These investments ensure that you have funds that can help you achieve your long-term and short-term goals. One such investment opportunity, to avail for achieving your short-term goals, is a Unit Linked Insurance Plan (ULIP).
ULIP is a unique financial instrument that has the components of both life insurance and premium. It is a plan that was designed in a manner where the policyholder has their loved ones secure with the life insurance component and also makes money by earning returns on investments. The premiums that you pay when you buy a ULIP are partially used towards your life cover and partially allocated to funds for investment. You can choose where you want to invest your money in a ULIP. There are several types of ULIP available in the market that a policyholder can choose from based on their risk appetite. If you are looking for a financial product that can benefit you both, in the short and long haul, ULIP might be it.
How does ULIP benefit in the short term?
Every investment is designed in a manner that offers benefits to the customer. The unique structure of a ULIP is such that it can provide benefits on multiple levels. Here are some short-term ones:
- Inculcates the practice of saving
To achieve any monetary goals, it is a must to save habitually. The earlier you save, the more you will benefit from it. When you buy a ULIP, the premiums you pay are partly allotted to funds you have selected. This ensures that you put aside money in a recurring manner. Even though the amount may feel small monthly, over the year it adds up. This amount will then prove beneficial for you to achieve your short-term goals.
- Offers several options
When you are investing, the risk you can take is one important factor to comprehend. There are several types of ULIP you can select from, based on your goals, financial standing, and willingness to take risks. If you are looking to take some risks, equity funds are a good choice. They offer high returns for the high risk involved. If you are looking for a risk-averse option, there are debt funds. They offer lower returns when compared to equity,but are a safe bet. If you want to try both, there are balanced funds that offer moderate returns for moderate risks. Several insurance companies also design ULIPs based on the goals of the policyholders.
- Allows free partial withdrawals
When you are looking to fulfil your short-term goals, you need an investment where you can access your funds immediately without having to pay any charges. This is where a ULIP benefits It has a lock-in period of 5 years, after which you can avail of free partial withdrawals. These free partial withdrawals will come in handy to achieve your short-term goals without having to break your entire investment.
- Permits switching fund allocation
When you buy a ULIP, there are different funds amongst which you choose your allocation. If you have invested in an equity fund, it is unnecessary that you have to stay in it throughout the policy. The same goes for debt. One of the ULIP benefits is that you can switch your fund allocation anytime you want. This ensures that, based on your changing financial goals, you can alter your portfolio too. This gives investors the opportunity to grow according to their own pace.
Along with the above benefits, for the short term and long term, ULIP also offers several tax benefits. The money that you pay as premiums are exempt from taxes. Also, there are tax benefits available on maturity and death benefits, subject to certain conditions. It is important to research and compare several ULIPs before buying one to achieve your short-term and long-term goals with ease.