Wednesday, July 17, 2024

Do ULIPs Offer Protection From Inflation?

We frequently err on the side of caution when looking for ways to invest our money in order to achieve our financial objectives or to build long-term prosperity. After all, we want to secure our financial future and ensure that the money we have worked so hard to achieve is yielding safe and consistent returns. But many of us fail to consider inflation, which is an important factor in investing.

Protecting your investments against inflation

Due to inflation, one dollar may purchase fewer and fewer items each year. Simply put, if inflation is 5%, your $100 bill will only be worth $95 in a year, significantly lowering your purchasing power. Let’s examine this within the framework of investments. Let’s say you invest your money in a savings vehicle that offers a 6% return. Even if this investment yields a gain, an 8% inflation rate means that you will still be losing money to inflation. Your corpus is increasing by 6%, but even if prices for products and services have increased by 8%, the value of that money has drastically decreased.

It is crucial to concentrate on your real returns, which are the worth of your returns after taking inflation into account when examining your investments. You can achieve this by including investments in your portfolio that have historically outperformed inflation. The secret is to make investments in assets that will enable your corpus to expand faster than inflation. You should make sure that your long-term investment’s average returns are at least 2-3% higher than inflation. In the past, investing directly in stocks has outperformed inflation over a long period of time. However, if you’re looking for a lower-risk option that can still outperform inflation, you might want to think about investing in a unit-linked insurance plan (ULIP).

ULIP: What is it?

An innovative product that combines investing and insurance benefits is a unit-linked insurance plan. By purchasing ULIP plans, you can get insurance coverage with a portion of your monthly, and you can also invest a portion of your premium in the equity, debt, or hybrid funds of your choice. They also offer you ULIP tax benefits, which are explained further.

How do ULIPs aid in combating inflation?

  • Market-linked returns:

One of the main benefits of a ULIP is that you can invest in stocks with relatively little risk because it offers market-linked, inflation-adjusted returns. Since stocks often outperform inflation over the long run and produce larger returns than any other asset class, this product is a desirable investment choice. Its flexibility also enables you to mix and match your assets, diversify your portfolio, and insure against market risks.

The estimated value of your ULIP investment can be calculated using a ULIP calculator based on the premiums, tenures, and other information you enter.

  • Greater lock-in duration

The ULIP is designed as a goal-based planning tool. The fulfilment of certain mid to long-term goals, such as home ownership, parenthood, or retirement, is the goal of investing in a ULIP. Because of this, ULIP plans are created to be genuinely profitable only if you invest for a minimum of ten years. They also include a five-year lock-in period, allowing you to invest money methodically to achieve your financial and life goals. ULIPs promote long-term investing habits and investor discipline, which in turn helps the magic of compounding do its job. Equities will also only perform better than inflation over a longer time horizon.

  • Tax advantages:

Along with your investment, you can benefit from ULIP tax benefits. Section 80C of the Income Tax Act allows you to deduct up to Rs 1.5 lakh from your ULIP investment in your yearly tax return. In essence, benefits like this let you lessen the effects of rising prices. Additionally, you have the right to tax-free withdrawals. You can be rest assured that your family’s financial future is protected thanks to its insurance component.

The tax benefits mentioned in the article may not apply if you opt for the new tax regime since many tax exemptions and deductions have been scrapped within the new regime. They are also subject to any changes in the law.

You can look at the Bajaj Allianz ULIP plans that are offered on Finserv MARKETS to receive these advantages and more. Whatever you do, keep in mind that for significant and substantial wealth building, you must stay one step ahead of inflation when you analyse your investment portfolio. The ULIP calculator is a simple tool that you can use to predict the return you might get at maturity by entering a few details.

A part of an economy that cannot entirely disappear is inflation. Individually, we may ensure that we manage inflation by taking the necessary action. Buying a ULIP offers some degree of protection against inflation through the many advantages described above. One must consider all the factors while making an investment decision rather than only concentrating on high profits.

Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.

Lindsey Ertz
Lindsey Ertz
Lindsey, a curious soul from NY, is a technical, business writer, and journalist. Her passion lies in crafting well-researched, data-driven content that delivers authentic information to global audiences, fostering curiosity and inspiration.

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