Unit Linked Insurance Plans (ULIPs) have become an increasingly popular option amongst the new age investors. Revamped tax norms announced in the Union Budget 2018 has added to the attractiveness of ULIPs. Now investment in equities directly or through mutual funds will attract Long-Term Capital Gains (LTCG)tax at 10% on profits in excess of INR 1 lakh. This makes ULIPs as the only mode to invest in equities without attracting taxes.

ULIP meaning is quite simple. ULIP is a two-in-one product,which offers life-cover along with the benefits of market-linked returns.

Being a low-cost and easy-to-handle product, the fourth-generation or the new-age ULIPs are scoring high on investor’s preference these days. The consistent long-term performance of the ULIPs amidst the volatilities of the market has put them on under spotlight as a dependable investment option, which is a must-have in your portfolio.

What is unique about the fourth generation ULIPs?

The second and third generation ULIPs, which were floated in the market after 2010 and 2015, respectively, had several hidden charges. This has been eliminated to a great extent in the fourth generation ULIPs. There are certain companies like Bajaj Allianz Life, which are also reversing the mortality charges. In a nutshell, ULIPs are one of the most cost-efficient products in the market today. Apart from these, there are many more reasons why you should invest in the ULIPs.

If you are thinking about strong reasons as to “why should I invest in ULIPs now”, listed below are some important points, which would encourage you to consider ULIPs as an attractive investment option.

• Exemption from taxes

When it comes to tax exemption, ULIPs have an edge over mutual funds. The sum assured in the ULIP, which is at least tentimes the annual premium paid,is eligible for exemption under section 10 (10D) of the Income Tax Act. Hence, the LTCG element is also not applicable to the ULIPs. In fact, the initial investment in ULIP is tax exempt to the extent of INR 1.5 lakh under Section 80C. The ULIPs have an Exempt-Exempt-Exempt (EEE) tax structure, making them the most desirable aspect for any investor.

• Switching in between asset classes

ULIPs offer you a provision to shuffle your money between equity, debt, or cash-based funds whenever you want to, without attracting any additional taxes. This makes you completely in charge of your investments, thereby giving you the opportunity to reap maximum ULIP returns on your investment. ULIPs offer you a choice between six-eight funds based on your risk appetite. The provision to switch between funds enables you to discard the loss-making assets and keep only the funds, which give high ULIP returns in your portfolio.

• Return enhancer

Bajaj Allianz LifeULIPs offer you a unique feature known as a ‘Return Enhancer’. This gives you an option to receive your maturity proceeds in instalments. If you choose to receive your maturity benefit in instalments over a period of five years, you are entitled to an additional 0.5% of each due instalment. All this while you continue to stay invested in the funds.

• Return of mortality charges

ULIPs are life insurance products, which come with the additional benefits of investment across asset classes. You need to pay a premium to avail of the ULIP cover. This is the mortality charge, which is levied by the insurer every year to provide you with the life insurance cover. Bajaj Allianz LifeULIPs have a meaningful feature, which returns you this mortality charge on the maturity of the plan. This means your life insurance is practically free of cost.

• Cost-effective as compared to mutual funds

ULIPs are much more cost effective when seen in comparison to mutual funds, its close contemporary. Benefits like zero premium allocation charge and nil policy administration cost add to the attractiveness of ULIPs. They also have very low fund management charges of 1.35%. The effective charges on a policy term across 10-15 years come at a nominal rate of 2% to 3% approximately.

• Higher ULIP returns

ULIPs have been able to provide higher returns over the long-term. Leading ULIP providerslike Bajaj Allianz Lifehave garnered CAGR to the extent of 20% over a period of five years. This is quite impressing when compared to the 15%-18% returns generated by mutual funds over the same period.

• Flexibility

When you choose an investment option, flexibility is a feature that scores high on your wishlist. ULIPs offer the ideal choice in that case with features such as switch, premium redirection, part withdrawal, and settlement option.

There are also some new age ULIPs wherein you can alter the policy term, enhance or reduce the premium payment term, opt to discontinue premium payment after five years, and have an option to change the original sum assured level.

ULIPs: A must-have investment product for unpredictable times

These are few of the factors that make ULIPs an attractive and compelling investment proposition in the current market scenario. The unique mix of low risk and high ULIP return coupled with options such aseasy switch, partial withdrawal, and waiver of mortality charges has enhanced its trust element amongst investors. ULIPs offer respite to investors who want exposure to the volatile equity markets while seeking to achieve long-term investment goals.

Due to the pre-conceived notions about ULIPs in the second and third generation, there is less awareness about the improved features of the new-age ULIPs. This product category has undergone immense changes and all for the good! This is a new product proposition, a new generation of ULIPs that has emerged after numerous regulatory changes. With a history of stable long-term returns, these ULIPs surely deserve to be a prominent part of your investment portfolio.