Are you a professional working in a corporate house? Do you want to save tax but feel sad about the low rate of returns generated by life insurance policies? Probably, you need to review your plans. Gone are the days when you did not have any choice but to buy conventional life insurance policies just for the sake of claiming tax benefits.
Today, you have a very powerful option at your disposal. Interested to know more?
We are talking about Unit Linked Insurance Plans (ULIPs). These are the plans which can provide you dual benefit of insurance coverage and superior returns. As a young professional, you can take a bit of risk and develop a mix of conventional and ULIPs.
Section 80C of the Income Tax Act provides for tax benefit on deduction of up to Rs 1.50 lakh. This amount is big enough to be allocated in different types of life insurance plans that are eligible for the tax benefit. Thus, you can consider investing some amount in a traditional insurance policy and the rest of it in ULIP types of plans, which can support your aspirations of better returns on investment.
In the long run, a ULIP Plan can provide you more than double the returns generated by a conventional life insurance plan. In fact, there are ways through which you can spread your investment risks by investing in ULIPs only.
ULIPs come under different types. It is not essential that you have to take risk of investing in equities. The below table can get you an idea of different types of ULIP funds.
|Type of fund||Nature||Risk category|
|Equity fund||These types of funds invest your premium in equities. Therefore, the level of risk is high and so does the chances of high returns.||Medium to High|
|Bond fund||As the term suggests, Bond funds invest in government bonds and securities. There is no risk involved but the rate of return is too low. In many cases, the return is even lower than the average rate of inflation.||Low to Medium|
|Cash fund||These funds allocate your premium in money market and bank deposits. The returns are as same as Bond funds, and there is hardly any risk.||Low|
|Balanced fund||Balanced funds invest in both equities and government securities. There are predefined slabs, which users can select in order to allocate funds in different instruments.||Medium|
The above table shows that within the ULIP category, there are various types of sub-categories which one can consider. It is a good strategy to spread risks and go for a combination of equity and securities based ULIPs.
For instance, one can allocate a fund of Rs 1.50 lakh in three different funds: equity fund, balanced fund and bond fund. This way, one can balance risk and rewards, and end up getting average returns which are much better than traditional debt funds and life insurance policies.
Also, given the on-going economic reforms and stable government in the country, it is an opportune time to invest in the equity markets, which are likely to clock double digit growth in the near term.
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