Your first salary and first job are something precious and dear to you. It is a significant milestone you’re going to cherish all your life. Thus, you obviously want to do many things with your first-time salary. Buying things for yourself, more outings, buying gifts for others, and more. While these activities are necessary too, putting your hard-earned money into financial planning and investments early on can help you greatly.
There are a variety of investment options you can think of. However, one investment plan that can help with life coverage, wealth creation, and tax savings at the same time is ULIPs. Wondering what are ULIPs, how they work, and how they help in long-term financial planning? Continue reading as we explore more about Unit Linked Insurance Plans, their features, benefits, and reasons why they are one of the go-to investment solutions for first-time salaried individuals.
What are ULIPs?
ULIPs can simply be understood as a 2-in-1 plan offering you the benefits of both: insurance and investment plan. Thus helping individuals achieve two goals simultaneously.
What makes ULIPs an attractive option for first-time salaried individuals?
By investing your salary in ULIPs, you can earn several advantages. Here are some of them.
You get a dual advantage
As mentioned, with ULIPs, you get double the benefits: an investment and a life cover. The life cover ensures financial security for the policyholder’s family in case of their untimely demise.
You enjoy the flexibility to invest
A ULIP allows you to invest in several types of funds, including fixed-income funds, equity funds, debt funds, and cash funds. Each of these funds has different features and is designed for individuals with different risk tolerances, offering you the flexibility to invest in what best suits your needs and financial goals.
Suitable for all kinds of investors
As mentioned, different funds in ULIPs involve different levels of risk, making them suitable for individuals with varying financial goals and risk-taking abilities.
You may switch between funds
Imagine investing your first salary into building a portfolio. But then, a few years later, you want to make some changes in your portfolio. What do you do? Well, ULIPs allow you to avail of this feature as well. With ULIPs, investors can modify and switch their funds based on market fluctuations and conditions.
Benefit of partial withdrawal
As someone who has just started earning, how well prepared are you to deal with a medical emergency? Or what if there are some unexpected expenses or you need to fulfil any other short-term financial obligation? With ULIPs, you ensure liquidity for financial support in unexpected circumstances. Once the lock-in period is over, you have the option to make partial withdrawals from the fund value that has been accumulated so far.
You enjoy tax benefits
What makes ULIPs a more attractive option for salaried individuals is that they allow tax benefits. For instance, you may enjoy tax deductions of up to ₹1.5 lakhs per annum on the premiums of ULIP according to section 80C.³ Further, according to Section 10(10D) of the IT Act, the returns on your maturity amount are also tax exempted under certain conditions.
Disciplined investments with SIPs
ULIPs empower individuals to make regular savings and investments. Features like systematic investments and lock-in periods facilitate consistency, which can be key to wealth creation and long-term investing.
Lock-in period
For first-time salaried or regular salaried individuals looking to invest in something regular and long-term, ULIPs can be a good choice. Generally, these policies have a lock-in period of 5 years, which encourages and helps with long-term investing, financial planning, and more.
Who else are ULIPs for?
With ULIPs, you get an easy opportunity to invest in a diverse range of funds. This design makes them suitable for investors investing for the first time, salaried people, entrepreneurs, homemakers and many others. ULIPs can be the right choice for anyone whose aim is protection, wealth creation and systematic investments. Further, you get to enjoy the benefit of financial stability, plus you get the flexibility to switch your funds based on market conditions and make the most out of it.
Conclusion
Investing in ULIPs can help you earn several benefits, including tax benefits, the ability to switch in case of market turbulence or your changing needs, and much more. However, always make sure to understand the financial instrument and its features, benefits, and limitations before investing. Don’t forget to consider your risk-taking abilities and do all the calculations. Use a ULIP plan calculator to understand your monthly budget. Once you’re clear of all the basics, make an informed decision based on your needs and financial goals.
