Apart from spending habits, demonetisation has affected the available investment options as well. Banks, which are flushing with funds, now, have already started decreasing interest rates on fixed deposits and are expected to lower them further. Life insurance it seems is becoming a preferred option for investors. As per the latest IRDA report, the total first year premium in November 2016 jumped to more than Rs 16,000 crore as against Rs 7,500 crore in November 2015. Both single premium and regular premium figures have shown growth over this period.
Amidst all this, life insurance products such as Unit Linked Insurance Plan (ULIP) can be considered a more reliable wealth creation solution over the long term, keeping in mind the returns, protection and tax savings, all combined in one product. Amongst several investor friendly features, one of the unique propositions of Ulip is that it permits investing one’s premium in a mix of debt and equity funds in varying proportions, allowing inter-fund transfers through switches and all this with no tax liability. Ulip, as an investment option, stands out from all other market-linked investments, as the gains from even a debt fund in Ulip are tax-free in the hands of the investor.
Saving money aside, smart tax planning is an integral part of sensible financial planning. The average investor enjoys numerous tax-saving options like PFs and PPFs, life insurance plans, ELSS investments, ULIPs and more. When comparing different instruments it is always advisable to choose an option that offers the combined benefits of wealth protection, value appreciation, strategic flexibility, and tax savings.
A traditional insurance plan offers life protection and tax benefits with very little scope for wealth creation. Mutual funds, on the other hand, offer good returns with zero life protection and restricted tax-saving opportunities. Conservative tax savings options like PFs are unlikely to generate inflation-proof real returns over the long run. ULIPs are a useful financial tool that can be used to bridge the gap between the various investment options along with the added advantage of significant tax savings.
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