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Unlocking the Power of Compounding: This is why young entrepreneurs should invest in a ULIP

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Unlocking the Power of Compounding: This is why young entrepreneurs should invest in a ULIP
December 20, 2024

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The investment risk of ULIP is borne by the policyholder.

Unlocking the Power of Compounding: This is why young entrepreneurs should invest in a ULIP

As a young entrepreneur, every decision you make today shapes your tomorrow. Whether you're managing your startup or building your personal financial portfolio, the choices you make now can impact your future success. But when it comes to investments, how do you know where to start? The world is filled with options, but as a first-time investor, it can feel like navigating through a maze. So, where should you begin?

Here’s where Unit-Linked Insurance Plans (ULIPs) could step in and make all the difference. ULIPs are an investment that not only offer protection for your loved ones but also helps you grow your wealth over time. Sounds like the kind of solution every entrepreneur needs? Yes, it does.

Let’s break down why ULIPs can be a fantastic choice for first-time investors, especially when considering the power of compounding.

What is an ULIP

A Unit-Linked Insurance Plan (ULIP) is a unique investment product that combines life insurance with the opportunity to invest in a range of market-linked funds. Essentially, it’s two products in one—offering the dual benefit of financial protection and investment growth.

To help you visualise, think of a ULIP like a multi-functional tool that’s essential for both protection and wealth-building. Just as a startup needs both innovative thinking and operational infrastructure, a ULIP helps diversify your financial portfolio by offering life cover and investment opportunities in a single plan.

For a young entrepreneur, just like your business requires risk diversification, a ULIP helps balance your financial approach by investing in both high-risk and low-risk assets. This means you get a flexible and diversified approach to managing your investments.

Why should young entrepreneurs invest in ULIPs

Starting a business is unpredictable, and so is the financial market. But just as your business grows over time with a flexible, adaptable approach, a ULIP offers you the flexibility to adjust your investment as per your needs.

1. Entrepreneurial focus: As you build your startup, your financial goals will evolve. ULIPs offer the flexibility to allocate your premiums towards equity (largecaps, midcaps, smallcaps, thematic, flexicap), debt (govt. bonds, corporate debt ), or balanced (equity and debt) funds, based on your risk appetite. Whether you prefer high returns from equities or a safer bet in debt instruments, ULIPs allow you to tailor your investment.

2. Need for financial protection: While growing your business is the priority, safeguarding your future is equally essential. ULIPs not only provide life insurance, ensuring financial protection for your loved ones in case of any unforeseen circumstances, but they also allow your investments to grow over time. It’s the safety net that lets you take risks in business while securing your financial future.

3. Long-term wealth building: ULIPs offer young entrepreneurs an opportunity to create long-term wealth through market-linked growth. By staying invested, you can leverage the power of compounding for faster returns. This makes ULIPs an ideal choice for those looking to build financial security while growing their business over time.

4. Partial withdrawals: As a young entrepreneur, you might need access to funds for your business at times. ULIPs offer partial withdrawals after 5 years, making them a great tool for both growth and liquidity.

Power of compounding and maximising your returns

As an entrepreneur, you understand the value of incremental progress. Every small step you take in building your business adds to its success over time. The same concept applies to investing. In ULIPs, the power of compounding ensures that the longer you stay invested, the more your money grows.

Here’s an example. Suppose you start a ULIP with a monthly premium of ₹10,000 at an annual return of 10%. Here’s how your investment could grow.

  • After 5 years: ₹8 lakh
  • After 10 years: ₹21 lakh
  • After 15 years: ₹42 lakh
  • After 20 years: ₹76 lakh

As an entrepreneur, you understand the value of incremental progress. The more time you allow your investment to grow, the greater the benefits of compounding. Here’s how a ₹10,000 monthly premium in a ULIP could grow over 10 years with different annual returns.

  • At 8% annual return: ₹18 lakh
  • At 10% annual return: ₹21 lakh
  • At 12% annual return: ₹24 lakh
  • At 15% annual return: ₹28 lakh

The longer you stay invested and the higher the returns, the more your wealth multiplies. This highlights the power of compounding, making ULIPs a powerful tool for long-term growth.

ULIPs and tax benefits

As a young entrepreneur, it’s crucial to maximise your income while minimising your tax liabilities. One of the key advantages of a ULIP is its tax benefits. ULIPs offer tax deductions under Section 80C of the Income Tax Act*, helping you save on taxes while investing for your future.

Maturity benefit can also be tax-free if policy was issued on or after February 1, 2021, your annual premium is below ₹2.5 lakh while remaining under 10% of the sum assured.

So, while building your business, you can also focus on scaling your wealth in a tax-efficient manner.

How to get started with an ULIP as first-time investor

Starting with a ULIP is relatively simple. Here’s a 3-step plan on how you can begin.

1. Choose a ULIP plan: When choosing a ULIP, assess your risk profile. Are you willing to take higher risks for potentially higher returns, or would you prefer a more conservative approach? Select a plan that aligns with your financial goals. Consider ULIPs from HDFC Life Insurance since they can offer up to 100 times of your premiums as sum assured, a minimum assured benefit as capital guarantee, choice of up to 15 funds to invest your money in, and unlimited free switching etc.

2. Select fund options: You can choose between equity, debt, or balanced funds. If you’re just starting out, a balanced fund may be a good option, offering both growth potential and a safety net.

3. Begin contributing: Start with manageable premiums, and gradually increase your contributions as your business grows and your financial situation improves.

Your financial journey begins here

As a young entrepreneur, empowerment through knowledge is key to success, both in your business and personal finances. Understanding how ULIPs harness the power of compounding, offer tax benefits, and provide the flexibility you need to adapt to life's unpredictability can be the key to securing your future.

So, as you scale your business, why not scale your wealth, too? A ULIP could be the investment partner you need to achieve your financial goals while safeguarding your future.

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ARN: ED/12/24/19049

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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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*Tax benefits are subject to conditions under Sections 80C, of the Income Tax Act, 1961. Tax Laws are subject to change from time to time.

Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender/withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.

Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. 

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