Ulips are insurance plans where the money invested by the client goes into the stock market in different funds available. The funds available basically vary from equity-linked funds which are of higher risk but chances of higher returns. Then you have bond funds which are very secure with lower returns. You also have a mix of equity & bond funds to give a balanced portfolio with corresponding returns Ulips investments are fully invested in the stock market the returns will fluctuate as per markets. The chances that you will get higher returns are high over a period of time.
Due to the nature of Ulips, the investment risk will always be of the client and the insurance company does not take the onus of returns. Investing in Ulips requires almost zero knowledge, zero skill and the risk is also significantly lower as it will be monitored by fund managers. However, the client has an option to switch funds to maximize returns on his policy. As ulips have different funds it is very easy for the client to choose as per their risk appetite.
Recently the budget brought about some changes in Ulips which created a great interest among the people. After the announcement in this budget 2021 from 1st Feb 2021, all ulips sold will come under the new rule as declared by the Finance minister during the Budget.
The good news is that ulips will continue to give tax benefits U/s 80c for premiums up to INR 150000. Additionally, investors will get tax-free returns U/s 10(10d) where the invested amount is up to INR 250000 in the financial year.
The best about Ulips is that you do not need any market knowledge nor do you need to spend time monitoring. You just need to choose what amount you want to invest starting with a minimum SIP of Rs. 2000 per month. Investing in Ulips is very simple, fast, and paperless.
Over a period of time, the maturity value far out beats the guaranteed plans
The investment options are many like monthly SIP, yearly and even single premiums are available
An important point to note is that for the tax benefits mentioned above the sum assured should be at least 10 times the annual premium.
Though there is no limit to the amount that can be invested in ulips, returns will be taxed if the annual premium crosses INR 250000 in a financial year.
However, it has exempted the death benefit given to the nominee even if the premium is over INR 250000.
Basically, the 2021 budget has taxed the maturity for people who were investing over INR 250000 and getting tax-free returns earlier. This taxation will now make it comparable to other tax-saving instruments only for premiums over 2.5 lakhs.
The five-year lock-in period also continues to be in force, however, it is advisable to take a long term in a Ulips as exiting any time after five years normally does not attract any penalty.
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