Unit linked insurance plans, or ULIPs offer the dual benefit of life insurance and investment. They help you grow your money for your future financial goals and financially secure your loved ones with a life cover¹ as well.

You may consider investing in a ULIP to meet any of your long-term financial goals, such as buying a house, starting a new venture, retirement, your child’s education or marriage, and more. ULIPs offer multiple fund options like equity, debt, and balanced funds for you to invest in as per your risk appetite.

If you want to invest for a longer time horizon, of about ten years or more, you may consider investing in a ULIP. With a long time duration, your investment in a ULIP can make up for short-term market volatility and deliver high returns.

What Is a 10-Year ULIP?

A 10-year ULIP provides the dual benefit of insurance and investment. This plan allows you to invest in different funds^# like debt, equity or hybrid funds based on your risk appetite. Your investments grow as per market conditions, allowing you to build wealth for your long-term financial goals.

In case of an unfortunate event, a 10-year ULIP also provides you with a life cover^@ that offers financial security to your loved ones.

How Does a 10-Year ULIP Work?

Let's take the example of Kavita, a 40-year-old mother of two, to understand how a 10-year ULIP works. Kavita wants to build a substantial fund for her children's higher education, over the next 10 years. No matter what career paths her children choose. Kavita wants to ensure their future is secure. While she has some savings, she understands that rising education costs may make it difficult to rely on savings alone. Kavita decides to invest in a 10-year ULIP – a market-linked insurance plan that offers the dual benefit of insurance and investment for building a fund for her children’s education. Using a ULIP calculator, she estimates how her fund grows over time. She opts for a combination of equity funds^# for growth and debt funds^# for stability. Kavita pays quarterly premiums and enjoys tax^* benefits under Section 80C of The Income Tax Act, 1961, along the way. By the time her children are ready for college, Kavita’s ULIP has helped her accumulate the necessary funds to secure her children’s educational goals. Moreover, in case of any unfortunate event during the policy term, a life cover will be provided to ensure financial security and help her children pursue their goals.

Benefits of Investing in a ULIP for 10 Years

Below are some key benefits of a ULIP that can enable wealth creation over the span of ten years or more:

Long-term investment

A ULIP can be a good long-term investment. The longer you stay invested, the more time your money gets in the market. You get to ride out market volatility and turn any losses into potential gains. This helps to amplify your overall gains.

Market-linked returns

A ULIP provides market-linked returns, which means that the returns you get from your ULIP depend on market conditions. This enables you to build wealth by making use of the market opportunities. You can decide your investment amount as well as choose the funds for investment according to your financial goals.

Fund switching option

Some ULIPs allow you to switch between funds as many times as you want. This helps you take advantage of market fluctuations to earn better returns. For example, you may want to switch to low-risk debt funds when the markets are volatile and high-performing equity funds when the markets are favourable.

Tax^* saving

ULIPs can help you save taxes. ULIPs provide the below tax^* benefits as per the Income Tax Act, 1961:

• The premiums paid towards a ULIP can be used to claim a deduction^* of up to ₹ 1.5 lakh per annum under Section 80C
• The payouts received from a ULIP are tax-free^* subject to conditions under Section 10(10D)

Insurance protection

A ULIP provides financial security to your loved ones in case of an unfortunate incident during the policy term. This keeps your loved ones financially protected, no matter what!

Flexibility

ULIPs are highly flexible plans. You can select from multiple premium payment options, policy tenures, and more. Some ULIPs also provide you with multiple options to receive the payout from the plan. A ULIP can be customised precisely to suit your needs.

Partial withdrawal option

Some ULIPs provide you with the option to withdraw money from your plan even before its maturity. This helps you stay financially prepared for an emergency. You can avail of the partial withdrawal option after 5 years from the purchase of the plan.

Wealth generation from ULIPs in 10 years

The true potential of a ULIP can be realised over a long investment term. The longer the term, the more time your money gets to grow. A long time horizon is also helpful in overriding short-term market volatility, economic slowdowns, and losses.

What is the expected return on a ULIP policy after 10 years?

The expected ULIP returns after 10 years largely depend on the choice of funds within the ULIP. ULIPs offer a variety of funds, and the plan’s return is directly linked to the performance of the funds^#. You have an option to choose from three types of funds^# - equity, debt and balanced fund.

Your ULIP returns in 10 years will also be influenced by the changes made to your portfolio and market conditions during this period. Additionally, it is important to keep in mind that ULIPs come with associated charges and fees. These can also impact the overall returns.

How is the return on a ULIP calculated?

You can use two methods to determine the returns from a ULIP: Absolute return and Compounded Annual Growth Rate (CAGR).

Absolute return takes into consideration the Net Asset Value (NAV) of the fund. This method calculates the total percentage increase or decrease in the value of an investment over a given period. Here is the formula for the same:

Absolute Returns = (Current NAV − Initial NAV/ Initial NAV) × 100

On the other hand, CAGR represents the annual increase in your investment over a specific period. Here is the formula for calculating CAGR:

CAGR = [(Current NAV value/ Initial NAV value) (1/ number of years)] - 1 x 100

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