What is ULIP’s?

ULIP stands for Unit Linked Insurance Plan. It is an investment product that provides for insurance payout benefits. ULIP offerings are primarily concentrated in India.

When was the first ULIP launched in India?

The first ULIP was launched in 2001, by the Unit Trust of India. It was around this time the government of India decided to open the insurance sector to the foreign investors and with the issue of important guidelines by the Insurance Regulatory and Development Authority (IRDA).

How does ULIP’s work?

It is a unique kind of insurance plan which combines the benefits of both mutual funds and life insurance in one method or a product. These plans provide market-linked returns along with life insurance coverage for the individual investor.

A portion of the premium amount paid by the policyholder is utilized to provide insurance coverage to the policyholder, and the remaining portion will be invested in equity and debt instruments.

How does ULIP’s work?

The aggregate premium amount collected by the insurance company providing such plans is pooled together and spent in different proportions of debt and equity securities similarly in mutual funds.

Every policyholder has an option to choose his/her personalized investment mix based on the investment needs and risk factors. The investors unit-linked insurance plan holds a certain number of fund units, each of it has a net asset value (NAV) that is declared on a daily basis.

The NAV is a value on which the net rates of return on the ULIP's are arrived at. The NAV varies from one ULIP to another based on the conditions prevailing in the market and the performance of the fund.

Features of ULIP's

The following are the features of ULIP's:

• Investors can choose Life Cover - The investor can choose the life cover that comes as a part of the ULIP's.
• Amount of Premium can be changed - After a period, the investors can change the premium amount. It can either be increased or decreased depending on the financial status of the investor. It also provides top-up facility to investors.
• Investors can opt for riders - Riders are the additional benefits that can be availed by paying a marginally higher premium amount. It can be either critical illness rider, dominant illness rider, and so on.
• Provides Fund option - ULIP's is a kind of insurance policy where a part of the investor's money is put into an investment avenue like mutual funds, stock, bonds and so on. Most insurance players offer their customers the flexibility to choose the fund type in which they want their money to be invested.
• Market-linked returns - The ULIP's provides an opportunity to earn market-linked returns as a part of the premiums that are invested in different types of market instruments including debt, equity.
• Life protection, Investment, and Savings - It provides twin benefits of life insurance and savings at market-linked returns. The investor can invest the money to fetch high returns on investment as well as take the cover for life insurance and save money at the same time.

Tax benefit on Investment in ULIP’s

The amount invested in a ULIP plan can be claimed as a deduction under Section 80C (life insurance) or 80CCC (pension). A maximum of Rs 1,50,000 is allowed under Section 80C, up to 10 percent of the sum assured or annual premium amount whichever is lower.

Investment Portfolio

The investment portfolio is a collection of assets owned by an individual or by an institution. The best retirement portfolios diversity the mix of investments, to dampen market losses and to maximize potential gains.

A portfolio which is dominated by a single asset class cannot deliver the same result as that of a well-balanced investment mix. For the desired returns from the investments, one has to create an assortment of assets. To get a perfect return on the investment made out of equity, debt, and gold, one needs to make the asset allocation accurately.

Asset allocation means the proportion of each asset in the portfolio according to the investor's risk, goals and time horizon for investment. For those investors, who like to take higher risk tolerance, equity investment if held for an extended period will deliver smart returns.