They have an investment value in addition to a life cover for you. The policy holder is issued a certain number of units which are linked to an investment product and have a daily NAV system, quite similar to the working for a mutual fund”.
Sanjay knew how mutual funds worked, but he wanted to understand where the amount would be invested.
“The investment avenues could be equity/debt/liquid funds etc depending on the fund chosen by the investor. Of course, they also carry an insurance value and a life cover for the investor.
Hence, it covers both investments and insurance without the hassles of having to monitor it, and it enables a systematic investment for the client as well” explained Chanakya.
It sounded like the perfect product to Sanjay, but he was the kind of person who did his own research before opting for an investment. After a lot of study, this is what Sanjay found out about ULIPS:-
Types of ULIPS
Broadly, ULIPs are categorized based on the final objective they wish to achieve, and they are:-
1. Wealth Creation
Designed to invest in the equity or debt markets and generate a steady return over a long period of time.
2. Child plans
With the objective of saving for a child’s future, these plans have outflows at predefined intervals to meet those specific goals.
3. Retirement/Pension funds
Pension funds are designed to serve as a cushion for old age, wherein an amount is invested on a regular basis for some period of time. Upon maturity, the investor can buy an annuity fund which will pay back a monthly amount, sort of like a pension, which can be used for managing the day to day expenses.
Advantages of ULIPS
The benefits of opting for a ULIP are:-
1. It provides benefits of insurance as well as investments, thus packing in more features in single product.
2. Convenience of investing and not difficult to manage.
3. Enables goal based investing for specific purposes.
4. Number of free Switches allowed in a year gives flexibility of investing in equity/debt etc. along with multiple fund options.
5. Tax benefit under section 80C for amounts invested.
He now knew the pros and cons of investing in ULIP and by this regard, it seemed beneficial to split the two products rather than looking for a ‘one size fits all’ option.
Even though Mutual Funds offer a lot of simplicity and flexibility in terms of investment options and withdrawal, they simply cannot provide the risk covering capabilities of a ULIP. For long term investors ULIP can be the best available investment avenue. However it is the investor who needs to choose what is best for him depending on his/her financial goals.
The investment space is filled with options and you should look at them, identify your financial needs and then choose the right product.
Source: http://www.basearticles.com/Article/248897/What-is-a-ULIP-and-Why-You-Should-Avoid-Them.html
