The 20s are usually associated with starting your career, exploring life, learning to be independent, dating, and more. However, spending a little bit of time understanding financial security can help you in the long run, since you can make the most of the power of compounding. While one might not think or plan about their retirement in their 20s, financial planning will ensure that you enjoy your dream life quite comfortably a bit later. And a ULIP plan can be ideal for such scenarios.
What is ULIP?
If you are wondering what is ULIP, it stands for unit-linked investment plan. It is one of the most tried and tested investment tools. Should you invest in a ULIP plan, a portion of your premium goes to securing a life cover. And the remaining is invested in a fund of your choice. The dual benefits of the plan, providing life cover and market-linked growth, are what make them enticing.
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What should you consider?
Since you are in your 20s, these might be your initial investments. Being aware of the following will help you choose a plan that helps your fund grow considerably.
Identifying financial goals
Financial goals might sound a bit overwhelming at first, but they aren’t. You can simply jot down goals that you have in mind. It can be as simple as buying your first car, planning your first international travel, building wealth, or even creating a retirement fund. Once you identify a goal, you can set a tentative amount for each goal. This will help you choose the right plan to invest in.
Ability to take risks
Understanding your ability to handle risk will aid you in determining the right type of fund. If you are someone who can handle the volatility of the market, an equity fund would make for a better addition. On the other hand, if you are someone who wants to go ahead with a lower exposure to risk, a debt or balanced fund would be ideal.
Look at the charges
A ULIP plan usually has different types of charges, such as administrative charges, fund management fees, premium allocation charges, mortality charges, switching charges, etc. It is important to consider these charges before you start investing in the ULIP plan.
Explore flexibility
ULIP plans offer a fair amount of flexibility for their subscribers. For example, you can switch between different fund types, depending on the outlook of the market. The plan also allows you to withdraw funds partially, and at the same time, you can even add a top-up to the plan.
Add-ons
A good ULIP plan also offers add-ons. By paying a small premium, you can enhance the capability of your plan by a considerable margin. Some examples of crucial add-ons include critical illness cover or accidental death benefit.
Plan history
While the history of any investment tool is not a guarantee for future returns, looking at long-term data can be helpful in the decision-making process. Before investing, take a look at the 5-year or 10-year return of any fund for a better understanding.
Benefits of choosing ULIP
Now that you know what ULIP is, investing in them allows you to benefit from the following.
Dual Benefits
ULIP plan enables you to grow your fund over a duration, and at the same time, it offers protection in the form of life cover.
Tax benefits
Investments in the ULIP plan allow you to enjoy tax deductions under Section 80C of the Income Tax Act. Therefore, enabling you to save further.
Grow wealth
ULIP plans usually have a lock-in period of 5 years. The longer lock-in period brings forth discipline and a much higher chance of growth of your funds.
Flexibility
One of the major benefits of investing in ULIP plans is the flexibility to shuffle your allocations. If you feel the market conditions are too volatile, you can reduce your exposure in equity and increase the same in debt and vice versa.
Achieve goals
Before you start, you can set a budget for certain goals and, with the help of ULIP, achieve them. These could include your first car, a premium bike, expenses for a wedding, buying a house, etc.
Conclusion
When you invest in ULIP in your 20s, you give it a much better chance to perform over a longer timeframe. Using the above information, you can start exploring the ULIP plan to invest. When you invest early, you allow the funds to grow at a compounding rate. This enables the fund to grow considerably by the time you are in your 30s or 40s. And its life insurance coverage is another boon to have. The financial security offered by ULIP will help you in the long run.
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