Unit-linked insurance plans offer a lot of flexibility when it comes to investing, especially if you want to put money aside for a particular goal. Utilizing the ULIP features, you can customize your ULIP program to meet your unique investment goals and time horizon.
In many circumstances, generating an income stream from your investment portfolio might be advantageous. You can obtain a pension for retirement, a pension for a loved one, or switch your active income for a passive one.
What is the goal?
We must establish the objective first before talking about the sort of investment needed:
- Specific: The goal must have a specific number (a limited number).
- Financial objectives can be measured using money as the measuring unit.
- Your goal number should be as high as is realistically attainable given your current circumstances.
- The objective should be pertinent to you and your family.
- Time-bound: You should specify a time frame for completing the objective.
Your current situation –
Let’s imagine a hypothetical circumstance.
You are 30 years old, earn 4 lakhs rupees per month. Your two school-aged children and your spouse, who stays at home, make up your family. Your current monthly home expenses total Rs. 1 lakh.
Your income goal –
Receive an annual income of Rs. 100,000 beginning in 30 years, with annual increases equal to the minimum anticipated inflation rate (in this example, 3.5%). The payout should continue for as long as possible, up to age 100.
In 30 years, Rs. 1 lakh will be close to Rs. 3 lakhs with long-term inflation of 3.5% annually. With first-year instalments of Rs. 3 lakhs per month, you would need a rising income.
Goal phases –
The two phases of income goals are often called accumulation and distribution. You invest money during the accumulation phase in order to create a sizable corpus. You cease investing and take money out of the canon, and the distribution phase then starts.
Is the goal attainable for you?
You can achieve your goal with only an investment of about 11% of your monthly income at an assumed long-term rate of return of 8%. You may check for these specifics by using a ULIP return calculator.
You can build up enough wealth to cover the inflation-adjusted income, which starts at Rs. 3 lakhs per month, by investing about Rs. 45,000 per month.
Ideal investment for the goal:
A 30-year investing plan is extremely lengthy. The overall investment term is 70 years when the payout phase of your goal is included. Therefore, you can need an investment choice that enables you to invest for such a long time while keeping your charges in check.
In order to achieve this goal, you could need the following in your investment option:
- Long-term storage, maybe for life, or up to 100 years of age
- Exposure to equity may be possible.
- the flexibility to alter asset allocation as an investment develops
- flexibility of investing strategies
- a minimum of tax-free withdrawals to ensure that your income continues to qualify for the ULIP tax benefits.
Why should you invest in a ULIP?
- ULIPs offer four different kinds of investment funds. You can utilize any of these funds, each with a unique risk-return profile, to invest in your long-term portfolio.
- Equity funds demand a longer investment period for wealth growth during the accumulation phase because they are high-risk, high-reward investments.
- Investments in fixed income and equities are combined dynamically in balanced funds. Additionally, a lengthy investment time is necessary.
- In long-term fixed-income securities, debt funds invest. These funds are less hazardous than balanced funds and have a steady return profile. They are ideal for holding your accumulated corpus until the distribution phase, but they offer lower long-term returns than balanced and equity funds.
- With lower returns but nearly no return volatility over a short time, these funds are the safest.This fund can be the ideal place to park your money for the year and enjoy the ULIP benefits.
Tax-free systematic withdrawals –
A ULIP is a term life insurance policy with a five-year term. You are allowed to withdraw a portion of your accrued corpus if necessary after the lock-in period. Your distribution phase withdrawals are totally tax-free.
The finance minister announced the new Indian taxpayer income tax system in the budget for the fiscal year 2021–2022. So, depending on the ULIP tax benefits you want, choose the tax regime accordingly while filing your taxes.
A systematic withdrawal option might be provided to you as well, helping you build a reliable income source without having to work hard all the time. The insurance may regularly send the funds to your savings account at the frequency and amount you specify.
The topic of the solicitation is insurance. Please carefully read the sales brochure/policy wording before closing a deal for more information on advantages, restrictions, limitations, terms, and conditions.