There has been a lot of debate regarding the effectiveness of ULIPs in terms of beating inflation. Can these investment options actually keep you on the right side of rising costs, while helping you build wealth simultaneously? Experts feel that a ULIP is perhaps one of the top choices for combating inflation in the long run, offering the right mixture of insurance and investments. So, coming back to the core question, can Unit Linked Insurance Plans (ULIPs) combat inflation and help you with your investment goals? Here are some points that will help you understand the same.
How can ULIPs Keep Inflation at Bay?
● ULIPs give you flexibility to choose and invest in various kinds of funds for optimizing your returns. Based on your risk appetite, you can choose equity or debt funds, or a mixture of both. If you are investing for the long haul and are okay with higher market risks, then you can allocate more to equity funds. If you are risk-averse and wish to safeguard your returns as much as possible, then you may allocate a higher chunk of your portfolio to debt funds. If you are more into aggressively investing for the long term and can confidently ride out market volatility that is short-term or temporary, equity funds may find more favour in your portfolio.
● ULIPs are long-term plays if you really want to build wealth. The minimum lock-in period is five years. At the same time, long-term investment horizons help ride out temporary market volatility, while helping your benefit through the power of compounding. Investing in a ULIP for 15-20 years will help you build a sizable corpus that easily outstrips inflation, while taking care of your future goals. Compounding and its benefits can only be realized when you stay invested for as long as possible. Hence, this is one aspect that you should not neglect while checking out ULIPs for investments. You should of course be able to afford your investment for the long term without making any withdrawals.
● You can keep switching your ULIP funds minus any hassles. Some schemes come with unlimited free fund switches, while some have nominal charges for the same. This is the biggest advantage for beating inflation. If you see that the market is in a bull run, then you can switch more of your portfolio to equities in order to maximize your returns. If you see a bearish phase in the market, then you can buy more debt instead of equity to cut your losses and keep them at an optimal level. Depending on evolving life goals and stages, you can switch or re-allocate funds.
● ULIPs also give you handsome tax benefits. The premium payments are tax deductible up to Rs. 1.5 lakh every year under Section 80C. Naturally, a sizable amount is deducted from your gross taxable income as a result. This helps you notch up higher savings throughout the lifetime of your investment as well. Hence, they make for highly tax-efficient investments.
Hence, as you can see, ULIPs are excellent options to maximise wealth creation while keeping inflation successfully at bay. Other fixed-income investments often fail to outstrip inflation, although ULIPs solve this problem with their flexible nature where you can choose your funds and switch them periodically in order to maximise your returns. Professional fund managers can also take care of strategies for you, helping you ride out temporary market volatility in order to build a solid corpus for the future. Hence, they make for suitable options for investments, considering their overall advantages. The best part is that you get life coverage along with your investment. This gives you greater peace of mind regarding your family’s financial security in case of any untoward incident within the policy period. Not all investments can ensure this feature. It is definitely one aspect which motivates many investors to choose ULIPs.