How ULIP Fits In Your Financial Plan For Long-Term Goals

- Mr. Sanjiv Puri

Starting this financial year 2017-18, two of the most popular investments - equity mutual fund (MF) and unit-linked insurance plan (Ulip) will be in focus largely because of the tax advantage that Ulips will score over MF’s. Finance Bill 2018 has taxed the long-term gains on equity shares and equity MF (over Rs 1 lakh in a year) after holding period of 12 months. However, long term gains made in Ulips, which can be called as mutual fund wrapped around with insurance, remains tax exempt.

Whom does Ulip suits?

Investing in Ulips to meet long-term goals might not suit everyone. Those who lack financial discipline and are unable to manage protection and savings separately, Ulips fits the bill. Ulips have a lock-in period and therefore longer horizon instils investing habit in investors.

Many investors who are in a position to identify the right mutual funds schemes for their needs and simultaneously get a protection through a pure term insurance plan may easily avoid Ulips. They should continue to invest through equity mutual funds to met long-term goals after proper selection of schemes and doing asset allocation on regular basis.

For a long-term investor in equity related investment such as equity mutual fund (MF) and unit-linked insurance plan (Ulip), it is important to stay invested till the goal is achieved. While both MF and Ulips can help in deriving the benefits out of equity as an asset class, it is the Ulips that are structured for long term benefits more than MF’s. While MF’s are open-end and can be redeemed anytime, the investments in Ulips have a lock-in of five years.

Using Single Ulip for Lifetime

Some of the long-term goals could be buying arranging a down payment for home loan, funding of children education, marriage, or planning for one’s own retirement. All of these are possible to meet through a single Ulip.