5 reasons to go to ULIPs for building a retirement corpus

Written by : Knowledge Centre Team

2020-09-15

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Retirement is one of the moments of transformation. Regardless of how your life has been, but once you reach the retirement goal you need a steady income from the pool you built. After retirement, there should not be a struggle for earnings.

Therefore, before you retire you need to ensure that you can build a large enough pool to spend your retirement in comfort, and if possible, prosperity. While you have many investments to save for your retirement, very few beat the capacity of ULIP schemes when it comes to wealth building.

ULIPs are unit-linked insurance plans provided by life insurers and offer a range of features for investors to grow their money.

Here are five superb features of ULIPs which make this investment scheme the best for building a retirement corpus.

1. Wealth Boosters

The longer you invest, the better your wealth gets with ULIPs. ULIP plans like Invest 4G from Canara HSBC Life offer bonus units for investors who invest for more than five years. The units are added to your existing portfolio without any charge.

Invest 4G plan offers a higher bonus for investors staying for more than 10 years. The only condition with this feature is that you invest your premiums in time and regularly. This is a simple problem to solve using auto-debit from your bank account.

In fact, as far as possible you should use auto-debit mode for investments, especially if they are for a goal as important as retirement.

Tax-Exempt Maturity Value (& investments)

ULIPs are amazing when it comes to accumulating tax-free wealth. You can invest as much as you want and build a corpus of multi-crores, all tax-free. All you need is to ensure that your annual investment into the plan does not exceed 10% of the life insurance sum assured in the policy.

If your investment into the ULIP investment plan exceeds this ratio in any financial year, the returns on the excess amount will be taxable at maturity. If you are investing for more than 15 years this amount can be huge, which is highly likely for a retirement goal.

It is also very likely that you’d want to allocate more surplus to the plan from time to time. The recommended solution is to make sure your life cover in ULIP plan is more than 10 times of your expected annual investment.

For example, if you plan to start your investment with Rs. 2 lakhs a year, apply for a sum assured of Rs. 25-30 lakhs. This will allow you additional margin in the future to add more funds to the plan, without incurring tax liability on maturity value.

3. Only Investment Option with Customizable Asset Allocation

ULIPs offer investments into multiple funds at the same time. These funds could be a mix of equity and debt (balanced funds) or either of the two. Changing your asset allocation or moving money from one type of fund to another does not change tax status for the investment.

Also, you can change your asset allocation anytime or even withdraw money partially after the lock-in period. So, if you want to manage your allocation yourself, you have full control in the ULIP.

4. Automated Portfolio Management

ULIPs are the only long-term investment plans which offer custom asset allocation strategies for investors. Invest 4G plan offers four different strategies to manage your portfolio. These strategies will do the following without your intervention:

Exploit market opportunities
Maintain the risk of your portfolio
Keep your accumulated wealth safe from market fluctuations when close to maturity

This kind of automation allows you to focus on your career and family while your money works harder and grows. Needless to add that these strategies add more value with time. So, another valuable feature for long-term investors.

5. Life Cover for Spouse

If you are married to a homemaker, her financial needs and goals are entangled with yours. In the case of your untimely demise, her retirement and financial goals will also suffer greatly. But with ULIP you can ensure that this does not happen.

While ULIPs have a life cover, plans like Invest 4G go a step ahead and secure your future investments as well. So, if you happen to meet your ultimate fate, the insurer will make sure your ULIP reaches the goal you intended for it.

The insurer will invest all future premiums on your behalf after paying the life cover sum assured upon your death. The funds will continue to grow and at maturity will be paid out to your spouse.

Recommendations

You should use multiple investments to save for your retirement. If you are salaried, you likely have NPS or EPF accounts for retirement savings. But retirement is such a goal that it is impossible to fill the gap in the final years or after retirement. So, you should avoid taking any chance and invest more in the beginning.

Early investments receive maximum compounding and will add a lot more value to your corpus than the huge investments in the later years.

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