Finance

How to leverage the power of compounding the ULIP way

ULIPs and the power of compounding

As we worry about survival during this pandemic, we also worry about our investments taking a hit. I want to share why investing in ULIPs and leveraging the power of compounding is a good idea right now.

The economy is a mess and all we can do is be patient and wait for the market to look up. We hope that will happen sooner than we imagine. While discussing this with my investment advisor a couple of days ago, he suggested that we consider adding a ULIP or Unit linked life insurance policy to our financial portfolio.

He said, an early bird catches the worm—and this is relevant at this point as we would have an advantage going in for the ULIP. While ULIPs are good to invest in at any time, they are a smart choice especially now when the markets are in recovery mode.

On 19 May 2020, SEBI permitted mutual funds to make additional investment in govt bonds. Now Debt funds and equity funds have maximum exposure in to government securities. When market shows the sign of recovery, we can reduce the debt allocation and increase our equity exposure to encash the opportunity.

If allocation from mutual fund house in these funds is more then it is obvious that my current investment in this fund will also grow.

We all know that life is full of surprises, and finances are no exception. It may seem safer to hold your money in your savings account and get a steady return. Sure, we buy life insurance policies to cover the basic risks. But while a life insurance policy can take care of our loved ones when we are gone, what about our wealth and aspirations right now?

I admit I envisage a life of early retirement where I can reap the benefits of all the hard work I have put in over the years. What can I do to make my dreams come true? One of the answers, my manager told me, is to invest in a ULIP which not only provides insurance cover but also maximizes my savings through the power of compounding. What I needed was an investment plan that would help me grow my savings so that I can achieve my long-term financial goals. The power of compounding can maximize one’s savings by boosting one’s wealth.

What is compounding?

Compounding is the process of generating additional income through reinvestments. In such investments, you earn interest upon interest to magnify your returns. If you were looking to secure your savings and set some aside for your retirement, then you need to buy life insurance with a Unit Linked Insurance Plan that gives you integrated insurance and investment.

But how does the power of compounding help?

The simple answer is, compounding helps you multiply your wealth and secure your future.

How does the power of compounding work?

Compounding helps you with wealth creation goals as long as you have time on your side. As you earn interest on your returns, the faster your investment profits will grow. As an early investor, you will be happy to know that the power of compounding is a simple investment plan, almost as simple as when you buy life insurance online!

Unit Linked Insurance Plans or ULIPs from reputable insurers such as Max Life Insurance are some of the best long-term investment plans that give you significant tax benefits and returns. Usually regarded as the best life insurance policy in India, a ULIP plan leverages the power of compounding to provide returns that are almost immune to market volatility. This is especially important at this point in time.

ULIPs benefit from the power of compounding

With a lock-in period of at least five years, ULIPs are a great investment option that benefits from the power of compounding. For instance, if you stay invested for 10-15 years, then you can benefit from the power of compounding that works towards enhancing your wealth exponentially. It adds the profit earned back to the principal amount and then reinvests the entire earning to accelerate the profit-making.

How you can use unit linked investment plans to maximize investments

Leverage the power of compounding the ULIP way

Life insurance with the Unit Linked Insurance Plan (ULIP) offers you the flexibility that you may not get when you buy life insurance alone. Additionally, this financial instrument will earn you inflation-adjusted returns, apart from several other benefits.

Let us talk about how you can maximize your profits if you buy life insurance with the Unit Linked Insurance Plan.

  1. The dual advantage of insurance and investment

ULIP combines insurance and investment in a single plan with an added benefit of the power of compounding. You will make premium payments for your life insurance, and also simultaneously invest the funds in asset classes of your choice. Therefore, you not only secure the financial interests of your loved ones but also plan your wealth simultaneously.

  1. A broad range of investment options

You can choose to invest in debt funds, balanced funds, or equity funds, depending upon your risk appetite.

  1. Flexibility to switch portfolio

You have the freedom to switch between portfolios as per ongoing market conditions or investment goals.

  1. Power of compounding

With the power of compounding, you would be able to generate at least 12-15% return in the long-term by staying invested in the Unit Linked Insurance Plan for at least 10-15 years. This is really good.

  1. Enhance cover with a rider

You can buy life insurance with the Unit Linked Insurance plan and enhance your cover with a rider, making it comprehensive financial protection.

  1. Tax benefits

Since ULIP is a life insurance product, as per IRDAI, the instrument enables you to enjoy tax exemptions of up to Rs. 1.5 lakh under Income Tax Section 80C. At the same time, all maturity payouts are also tax-exempt under Section 10D of the Income Tax Act, 1961. The role of IRDAI here is to ensure complete transparency and accountability on the part of the insurance company so that you can leverage the dual benefits of insurance cover and investment benefits under one policy.

That is a long list of benefits to consider going in for a ULIP, an ideal long-term investment option—to enjoy the benefits of market-linked growth and life-time insurance with a single product.

And so, convinced we decided to invest in a ULIP in our son’s name, as he is young and it makes sense to do it that way.

Have you invested in a ULIP?

What were your reasons?

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