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Young Investor's Guide - What you Must Know About ULIPs

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March 16, 2019

ULIPs are Unit Linked Insurance Plans that serve as joint instruments for insurance coverage and investment through a variety of fund options. ULIPs come with a lock-in period of 5 years and therefore, enable financial discipline through regular investments which makes them ideal for long term financial goals. ULIPs also have the feature of permissible switches between various fund options that makes them very flexible and the subscriber gets to choose the fun option as per her/his risk appetite. Besides, investments in a ULIP come with tax benefits under Sections 80C and 10D of the Income Tax Act, 1961 and are also exempt from LTCG (Long Term Capital Gains).

ULIPs offer the feature of fund switches between multiple fund options. This means that the policy holder can switch between fund options depending on how a particular fund is performing at the market. The insurers provide this switch option free of any cost up to a maximum of 10 or even 12 switches. After this, a nominal fee for switching between funds is charged.Therefore, ULIPs are very flexible in terms of the customer's preferences and offer a credible flexibility that allows the policy holder to make informed decisions.

The investment fund options offered by ULIPs cover both equity and debt-based instruments. Therefore, the overall gains earned from a ULIP are stable and optimum in the long run.

When you invest in a ULIP, a part of the premium paid is channelized towards maintaining the life coverage while the other part is channelized towards the diverse fund options for the purpose of fund-growth through investment.Among these fund-options, there is an option that enables you to switch, based on the fund-performance at the market. Therefore, if the policy holder is not satisfied with the returns from a fund option in which she/he has invested, she/he can always switch over to the other fund option. This ensures a stable rate of fund management and growth.However, it must be kept in mind that these free switches are limited and the number of switches varies from one insurer to another. Once this number is exhausted, a nominal fee is levied by the insurer for further switches.

the payable contributions towards ULIPs are tax-exempt under Section 80C and Section 10D of the Income Tax Ac. 1961. As per the government mandate, the (LTCG) tax is not applicable for investments made in ULIPs thereby enhancing the tax-efficiency of ULIPs. As mandated by the Income Tax Act, 1961, the payable contributions towards ULIPs are tax-exempt under Section 80C and Section 10D. As per the revised rules under the government directives, ULIPs have been kept exempt from LTCG (Long Term Capital Gains).

A ULIP is a platform for insurance and investment that offers insurance benefits and at the same time, acts as a medium of growth for your funds through investment options. ULIPs have a lock in period of five years (earlier it was three years) and is suitable for specific financial goals over a period of time. There are tax benefits Tax saving is a very crucial factor for deciding the overall returns from an investment and this is where ULIPs score over various other investment options like Mutual Funds.

View ULIP Plans

HDFC Life offers HDFC Life Click 2 Invest ULIP an online unit linked plan that offers market-related benefits and helps you grow your funds at a stable rate.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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