OneInsure Blog
Post By Aditya Nair
Bloodbath in the Markets? It’s Time for ULIPs!
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ULIPs, Life Insurance, Equities
When the markets are struggling, the time is right to opt for equities. With the triple blow of an already sluggish Indian economy, the Yes Bank crisis, and the COVID-19 pandemic that is taking the global economy to a likely recession, some of the top names among publicly traded companies have taken a blow that they are not likely to recover from soon. The story of intermediate to smaller companies are even worse.
So, if your investment horizon is long, it is potentially a good time for you to opt for equities. Investing in equities when the markets are in a downward slump is a good way to gather more units. Also, needless to mention, having life insurance in the time of a global pandemic is of paramount importance (additional reading).
Fortunately for you, in the Insurance world, ULIPs serve the dual purpose of giving you the advantages of investing in equities (just like mutual funds) along with the benefits that come with investing in life insurance. But why invest in ULIPs and not mutual funds? Here’s why.
Power to You – Endless Flexibility with ULIPs
Even though you may have a fund manager when you invest in a mutual fund, you should be able to switch funds if you like too, especially in such volatile conditions. A ULIP, just like a mutual fund, invests in certain funds (that are determined by the fund manager and you at inception depending on your risk appetite). Unlike mutual funds, though, ULIPs allow fund switching without taxation or limitations.
To earn from market fluctuations, it is important to remain aware of upcoming trends and be open to the idea of shifting your money. A ULIP allows you to shift funds when you feel strongly that the markets are going to go a particular way, something that your fund manager may not want to do if you have a conservative fund orientation.
Apart from this flexibility, ULIPs offer investor benefits that generally makes it a better investment tool too.
Know Different Fund Options Available
With a ULIP, customers can invest in stocks, mutual funds, and bonds depending on their risk appetite, just as with mutual funds. The funds offered are low-, medium-, or high-risk funds and some of the options are (this list is non-exhaustive):
- Cash Funds – Investments are made in money market funds for low returns with a low risk rating
- Income Funds – Investments are made in debt funds, corporate bonds, and associated instruments for a fixed income with a high risk rating
- Equity Funds – Investments in corporate stocks for high returns with a high risk rating (investments in equity funds receive high returns when the market is doing well)
- Balanced Funds – Combination of high-return, high-risk equity funds for moderate returns with a moderate risk rating
Fund Switching Advantages of ULIPs Compared to Mutual Funds
The Long Term Capital Gains (LTCG) tax levied on mutual funds is not applicable to ULIPs. This means switching between equity and debt fund options in ULIPs are not taxable, and you lose no money in the transition, unlike mutual funds.
Fund Switching Advantages of ULIPs Compared to Equity-linked Savings Scheme (ELSS)
ULIP investors can redeem the entire amount at the end of five years, unlike systematic investment plans (SIPs) in equity-linked savings scheme (ELSS). Units in ELSS have to undergo a three-year lock-in period to be redeemed, which makes switching funds a constraint as you will have to wait for 3 years before redeeming your money, by which time there is a good chance it will have dropped down again.
A ULIP has no lock-in period for the money, except for the initial period.
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Unit-linked insurance plans are wholesome insurance products that can benefit from the share market as well as help in meeting financial goals. Moreover, being insurance products, ULIPs provide significant life coverage to secure your family in the event of your untimely demise.
To speak to ULIPs experts, contact OneInsure at 86559-86559 or support@oneinsure.com.
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