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In the past, ULIPs have been in the news for the wrong reasons. For investors who have bought ULIPs or are contemplating purchase, the past tends to haunt. However, ULIPs have undergone a makeover now, thanks to the revised ULIP regulations. Here are five reasons why you can consider investing in ULIPs.
First, the equity component helps spice up long-term returns on these schemes. For instance, Bajaj Allianz’ Future Gain Equity Growth Fund clocked annual returns of about 25 per cent over a five-year time frame. HDFC Life’s Click2Invest Blue Chip Fund, which is a balanced fund, has delivered about 20 per cent.
This is higher than the 8-8.5 per cent returns that FDs will fetch you. But higher-than-FD return comes at a cost. The performance of the equity portfolio of ULIPs is subject to market volatility and the returns may vary depending on market conditions.
So, ULIPs should not be used as a vehicle to just ride the equity rally but to build your dream corpus by staying invested for the long term.
Second, besides delivering good long-term returns, they also help you save tax. However, to avail tax advantage one should remember that the life cover should be 10 times the annual premium he or she pays.
The terms may vary across schemes, so read the policy documents completely to understand the nuances.
Third, one can now choose how much he/she wants to invest in debt and equity. Also switching to another scheme that suits one’s lifestyle and financial goals can be done seamlessly now.
Fourth, the management fee has now been lowered and range anywhere between 1 per cent and 2 per cent.
Besides, ULIPs provide loyalty bonus for those who stay invested for a longer tenure.
Finally, the IRDAI has put in place strict rules and regulations to ensure that consumer interests are protected.
For instance, the recent draft guidelines mandate that 25 percent of unit linked insurance fund be invested in government securities. It also has provisions to reprimand companies who misinform the customer.
The writer is Chief Executive Officer and Co-founder of Policybazaar.com
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