Here's What It Takes to Create Rs.3 Crores With Just 10 Years of ULIP Investment

2024-08-02

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Rs. 1.6 Lakhs a month is what it takes to build a corpus of Rs.3 Crores in a time period of 10 years or so. That is possible with a conservative rate of return of 8% p.a. However, this estimate does not account for the taxes on the interest or maturity value. So, the income from this investment has to be completely tax-free.

Is there such a wealth creation plan, which lets you accumulate crores within a few years, that too tax-free? Fortunately, there is – Unit Linked Insurance Plans or ULIP investment plans can make this feat possible for you.

What is ULIP Plan?

ULIPs are life insurance plans with a fruitful investment structure and features to help you build wealth with confidence. ULIPs allow you to invest in a mix of equity and debt funds under the same plan. You can also use dynamic investment strategies to keep your portfolio risk minimum and take advantage of the market opportunities.

ULIPs also have a life insurance component. Thus, you have a life cover as well which will be available to your family in case of your early demise.

How to Invest in ULIP to Build a Corpus?

Contrary to the popular belief, investing in ULIP is not a difficult task. The simplest way to achieve this goal would be to assume a minimum rate of return on a 10-year investment (approx. 8% p.a.) and start saving (Rs. 1.6 lakhs a month).

However, before beginning, you should spend some time to understand how you can better utilise its features to your advantage. With the unique features in a ULIP investment plan, you may end up either investing less or accumulating more.

For example, ULIP plan from Canara HSBC Life, Invest 4G, offers asset management strategies and wealth boosters for long term investors. Strategies like auto rebalancing and safety switch, allow you to benefit from equity market movements and guard your corpus as you approach closer to maturity.

Also, unless you want to fulfil your family’s financial safety goal with this same plan you would want to keep the life cover limited to the necessary amount. Remember, life cover defines how much you can invest every year tax-free.

Keeping ULIP Investment Plan Tax-Free

The maturity value from the ULIP investment will stay tax-free so far as your annual investment amount stays below 10% of the life cover. So, to invest Rs. 1.6 Lakhs a month you will need to apply for a life cover of approx. Rs. 2 crores.

Also, if you plan to increase your investment in the coming years, you can keep your life cover slightly more than 10 times of your annual investment. After all, that’s the minimum you can choose for the security of your loved ones.

Can You Invest Lesser Amount?

Of course, you can. You need to invest Rs. 1.6 lakh only because you want to achieve the Rs.3 Crore goal in 10 years. If you increase the tenure, here’s how your monthly investment will drop:

Investment Tenure (years)	Monthly Investment Needed
10	164,000
15	87,000
20	51,000
25	32,000
30	20,000

You may notice that with just 5-year increase in your investment tenure you monthly investment needs drop by 50%. What you see in this table is the power of compounding taking effect.

You can also see that anyone starting at the age of 25 can start investing just Rs. 20,000 a month and achieve this goal.

Can You Improve the Return on Investment?

There’s a popular saying among planners of all discipline, ‘plan for the worst and hope for the best.’ This is especially applicable to things which are not in your control, such as rate of return on investment.

Increasing your rate of return assumption will reduce your monthly investment need on paper. But, in reality, it may backfire as your earliest investment may drop and will fail to add enough value in the later years of investment. Worse if the actual returns remain below your expectation, you will need to invest higher amounts later to achieve the goal in time.

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Use Power of Compounding

You want to invest more in the beginning years so that more of your savings benefit from the power of compounding. You can see the simple example in the table above, as you get more compounding your regular investments reduce exponentially.

You can also reverse the example to see it in another way. Suppose you are 30 years old right now and you start investing Rs. 20,000 a month in the ULIP plan. Whereas, your friend will start at the age of 50.

By the time your friend starts investing, you will be sitting comfortably at approx. Rs. 1.2 Crores. Not to forget the fact that you will still invest Rs. 20,000 towards this goal, while your friend will need to invest a whopping Rs. 1.63 lakhs per month.

Principles for Achieving Large Financial Goals

Nothing wrong if you can invest huge sums of money towards a single goal. However, for the most part, the example may seem quite impractical, as you are more likely to have multiple goals at the same time.

So, whatever financial goal you wish to achieve, always stick to the few principles of wealth creation plans:

Start early even with a small amount
Avoid assuming huge returns on investment
Focus on managing risk on your investment. More people lose money due to panic selling than actual market events
Invest regularly and as much as possible in a consistent rhythm, for example, Rs. 5000 every month
Unless investment management is your full-time role, automate as much of the transaction as possible; i.e. use auto-debit for investment, automated portfolio management for asset allocation changes and account transfers for maturity value.

With these principles, you can be sure to hit any financial goal you set your eyes on to the best of your capacity. May the power of compounding be with you.

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