Investing in a ULIP scheme can be a smart strategy for long-term wealth creation, combining market-linked returns with life insurance protection. However, maximising the benefits of equity investments in ULIPs requires careful planning and informed decision-making. From choosing the right fund allocation to staying invested for the long haul, strategic investing can help you harness the power of compounding and market growth. To ensure sustainable financial success, let’s explore essential equity investment tips within ULIPs.
Whether you’re a first-time investor or a seasoned one, these insights will help you optimize your ULIP scheme for long-term gains.
1. Start Early and Stay Consistent
One of the biggest advantages of investing in a ULIP scheme is the ability to harness compounding. The earlier you start, the better your portfolio performs in the long run. Consistency is equally important—regularly investing a fixed amount helps smooth out market fluctuations and lowers your average cost per unit.
2. Use Systematic Transfer for Market Volatility
If you are hesitant about investing a lump sum due to market fluctuations, consider a Systematic Transfer Plan (STP) within your ULIP scheme. This strategy ensures that your investment is gradually shifted from low-risk liquid funds to high-growth equity funds, reducing exposure to volatility.
3. Manage Portfolio Risk with Auto Fund Rebalancing
As your investments grow, so does your portfolio risk. Markets fluctuate, leading to an imbalance between equity and debt holdings. Auto Fund Rebalancing periodically adjusts your portfolio to maintain the ideal mix.
● If equities outperform, funds are shifted to debt instruments for stability.
● If debt investments grow faster, funds are reallocated to equities for higher returns.
This automated strategy ensures your portfolio aligns with your financial goals and risk appetite.
4. Use Return Protection for Profit Skimming
Markets are unpredictable, and booking profits at the right time is essential. The Return Protector Option (RPO) within a ULIP scheme automatically transfers profits from equities to debt funds when they reach a predefined threshold (e.g., 5% growth).
By consistently locking in gains, you ensure your portfolio doesn’t lose value due to sudden market corrections. Over time, this strategy helps build a stable, low-risk investment portfolio.
5. Plan for Maturity with the Safety Switch Option
A common mistake investors make is staying heavily invested in equities up to maturity. The Safety Switch Option helps prevent last-minute losses by gradually shifting funds from equities to debt four years before policy maturity.
This ensures that your accumulated wealth is shielded from volatility and ready for withdrawal when you need it most—for retirement, your child’s education, or a home purchase.
6. Withdraw Systematically for a Stress-Free Future
Investing wisely is important, but so is withdrawing strategically. Instead of withdrawing your entire corpus immediately, opt for a Systematic Withdrawal Plan (SWP) to maintain a steady post-retirement income.
ULIPs allow you to withdraw small amounts regularly, ensuring that you continue to benefit from market growth while minimising risks. This approach works well if you want to generate tax-free income post-retirement.
Tax Implications of ULIP Investments
ULIPs are tax-efficient investments, and the Indian regime exempts them from the LTCG tax rate. This means investors can continue to reap the tax benefits of ULIPs.
- ULIP Premiums & Tax Deductions (Section 80C)
● Premiums paid for ULIPs are eligible for tax deductions under Section 80C, up to ₹1.5 Lakh per annum.
- Tax-Free Maturity & Death Benefits (Section 10(10D))
● As per the Finance Act 2023, maturity benefits from ULIPs are tax-free under Section 10(10D) only if the aggregate annual premium paid across all ULIP policies does not exceed ₹2.5 Lakh.
● However, the death benefit remains fully tax-exempt under Section 10(10D), irrespective of the premium amount.
- Partial Withdrawals: ULIPs are tax-free after the five-year lock-in period, provided the policy qualifies under the revised tax rules.
Note: Tax benefits are based on the prevailing tax laws, which may change occasionally.
Over time, tax-free returns on the plan’s maturity enhance financial efficiency while ensuring protection for the investor’s family. Individuals can maximise post-tax income while building a long-term investment corpus by making the savings plan a core part of their tax planning.
Aviva Signature Investment Plan – Platinum: Secure Your Future with Flexible ULIP Investments
For investors seeking both financial security and wealth growth, the Aviva Signature Investment Plan – Platinum offers a ULIP insurance plan with investment flexibility.
● It allows unlimited free fund switches, systematic transfers, and partial withdrawals after five years.
● The RetireSafe feature protects savings by reallocating funds to safer options before maturity.
● Additional benefits include a maturity payout, death benefit, top-up investments, and an option for systematic withdrawals.
● With 8 diverse investment funds, policy flexibility, and a 30-day review period, this plan ensures strategic growth while adapting to changing financial needs.
Conclusion: Invest Smart, Secure Your Future
Equity investments within a ULIP scheme are a powerful tool for long-term wealth creation. By following the right strategies—starting early, leveraging systematic transfers, balancing risks, and withdrawing systematically—you can ensure financial independence and security for your loved ones.
Ultimately, the key to success is staying disciplined and informed. Whether you are saving for retirement, a child’s education, or financial security, a well-structured savings plan can help you effortlessly achieve your goals.
