There has been a lot of talk about the benefits of ULIP investments and whether they are any good in terms of earning handsome returns. While industry experts and several consumers testify to the positive impact of ULIPs in helping them beat inflation, naysayers say that it is not that easy to earn good returns from ULIPs, while labelling them a costly investment.
Hence, taking the soaring popularity of ULIPs (unit-linked insurance plans) into account, it is necessary that you get a picture of how much you can earn from ULIPs along with some other basic aspects.
Why People Love ULIPs
Most investors choose ULIP investments for diverse reasons. Some of them include the following:
- Comparatively lower lock-in period of five years than many other investments. Also, this inculcates discipline and commitment towards long-term savings and investments.
- Tax deductions on premium payments up to Rs. 1.5 lakh every year under Section 80C
- Tax exemptions on maturity benefits under Section 10 (10D) if the annual premium is less than Rs. 2.5 lakh per year. Taxes are also exempted on the payouts arising from death claims under this section.
- ULIPs ensure handsome life coverage, financially securing the family of the policyholder in case of their unfortunate demise within the policy period. They get a fixed sum assured or the fund value, depending on the ULIP type in this scenario.
- Policyholders can choose the funds that they wish to invest in at the beginning of the policy, depending on their risk appetite and future goals
- They can periodically switch funds (often without a charge) depending on market conditions and changing goals. This helps them maximize ULIP returns or safeguard portfolio value based on evolving market factors.
- ULIPs offer an opportunity to benefit from compounding and cost averaging over the long haul. At the same time, the charges levied by the insurance company also come down significantly in the later years of the investment.
- There are accompanying loyalty bonuses which add significantly to the final maturity benefit
Now these are some of the biggest reasons why people simply love investing in ULIPs for their future needs. So now, let us move to the expected returns.
What are the ULIP returns that you can expect?
How much can you expect in terms of ULIP returns? First, let us assess various long-term and short-term scenarios.
Suppose you invest Rs. 1 lakh every year in a ULIP at an expected rate of 10% per annum in interest.
- If you invest for 5 years and stay invested for the same duration, then you will get Rs. 6.72 lakh on a total investment of Rs. 5 lakh
- Bumping up the tenure to 10 years means Rs. 17.5 lakh as a final maturity amount on an investment of Rs. 10 lakh
- In 15 years, with an investment of Rs. 15 lakh, you will get Rs. 34.9 lakh in total. This indicates two times your investment.
- In 20 years, you will get Rs. 63 lakh on an investment of Rs. 20 lakh, which is three times your investment. Bring the interest rate down to 8%, and you still get Rs. 49.4 lakh on your investment.
This illustrates the sheer power of compounding. The earlier you start, the better you can amass sizeable wealth for the future. The longer you stay invested, the more likely you are to earn better returns after riding out market fluctuations, ULIP charges, and so on.
Now if you are serious about building a retirement corpus, then investing Rs. 2.5 lakh per year at 10% for 30 years will give you a whopping Rs. 4.52 crore as your corpus on an investment of Rs. 75 lakh. This equates to roughly Rs. 20-21,000 per month and will help you build wealth sustainably for the future while keeping inflation successfully at bay. The key to maximizing returns from ULIP investments is to stay invested for as long as possible and start right from when you earn. Then, you can scale up your investments periodically with increases in your income and bonuses. This will keep you on track towards your wealth creation goals.
So what else do you need to future-proof your investment portfolio? Not many fixed-income and other investment options work better than ULIPs with regard to helping you create wealth for the future with minimal risks. You also get accompanying life coverage for greater peace of mind. It is also worth noting that the annual tax deductions will help you save more money eventually.
Hence, ULIPs make for a win-win proposition for any investor. Short-term horizons, however, will not yield substantial returns, and you should avoid these strategies. Stay invested for the long haul and reap rich rewards for your persistence.
