It would be an understatement to say that life and the events surrounding it, are kind of unpredictable. Financial setbacks, uncertainties, and unexpected health-related issues - they can also hit you really hard if you do not have the cushion of savings to fall back on. Which is why you need financial planning.
With the right kind of planning, you will get long-term financial security and take some calculated risks to help generate a steady chunk of passive income over time.
Once you start investing your savings in income-generating vehicles, such as ULIPs (Unit Linked Investment Plans) and mutual funds, your money starts to earn returns for you. There are other investment tools out there too - such as direct equity, that can contribute towards your wealth growth.
Let’s talk about them in detail.
SIPs/Mutual Funds
If you understand the market and its risks, mutual funds can become your best investment options to grow money multifold. Whether you are going for short term investments or long term, you can create an investment portfolio based on your preferences. The advantages of mutual funds is that it brings in the power of compounding, and on top of that, you can actually start investing with sums as low as Rs 500 a month.
Direct Equity
If you understand how a particular business functions, how it stands in the market and how it stands compared to its rivals, then direct equity might be a viable option for you. Having said that, this is mostly a high risk high reward investment, so it’s better if you do the homework on understanding a business inside out before jumping in.
ULIPs
The biggest advantage of investing in a ULIP is the dual benefit of getting an insurance cover as well as an investment solution. With a ULIP, you can get a life cover while focusing on fulfilling your long-term financial goals. Which is why ULIPs are suitable for all types of investors.
If we deep-dive into ULIPs, the first thing we should talk about is the host of features and benefits they offer.
Coverage plus pay-outs
Essentially, a ULIP gives financial coverage for fulfilling long term goals and keeps you prepared for any unexpected events that might arise. Apart from the pay-outs of the saving amount, financial coverage is provided to the members of your family in your absence.
Tax benefits
As per Section 80C of the Income Tax Act, 1861, investing in certain investment types helps you get tax benefits on the premium amounts paid. Tax benefit up to Rs 1.5 Lakh can be availed, depending on the premium paid.
Long-term wealth creation
By investing in a planned manner in certain insurance products, you can create a fair amount of wealth over a certain period. These help you in getting insurance coverage as well as investment opportunities in market-linked securities like debt, equity, and others. You can comfortably chill at home and get returns at your chosen frequency, which is decided based on the policy you’ve chosen.
Flexibility
ULIP is the only investment plan that allows the investor to switch funds as many times as he wants every year. Depending on your needs and the fund's performance, you can switch from one fund to another pretty easily.
If you want to learn more about ULIPs, click here.
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