If you are looking for an intelligent way to invest your money and secure your future, you might have heard of ULIPs. ULIPs, or Unit Linked Insurance Plans, are a type of investment product that offers you the dual benefit of insurance and investment. You can choose how to allocate your money among different funds and enjoy the returns based on the market performance. You also get a life cover that protects your family in case of any unfortunate event. To top it all, you get tax benefits on the premium paid and the maturity amount under Section 80C and Section 10(10D) of the Income Tax Act.
Sounds too good to be true, right? ULIPs are indeed one of India’s most popular and attractive investment options. But before you jump on the bandwagon, you need to know the latest trends and developments in the ULIP market. Let’s discuss the top three ULIP investment trends you must look out for in 2024.
Trend 1: Return of Mortality Charge (ROMC)
One of the most exciting features of some ULIP investment plans is the Return of Mortality Charge (ROMC). This means the insurer will refund the mortality charge deducted for providing the life cover at the end of the policy term. The mortality charge is the amount that the insurer charges for the risk of death of the policyholder. It depends on age, gender, health and sum assured. The ROMC feature ensures you get the full value of your investment, as you do not lose any money on the insurance part.
For example, suppose you invest Rs 1 lakh per year in a ULIP plan with a policy term of 20 years and a sum assured of Rs 20 lakh. The insurer deducts Rs 10,000 per year as the mortality charge for the life cover. At the end of the policy term, you will get the fund value plus the ROMC, which is Rs 2 lakh (10,000 x 20). This means that you will get back the entire amount you invested plus the returns on the fund. This way, you can enjoy the benefits of both insurance and investment without any loss.
Trend 2: Tax on Capital Gains
When understanding what is ULIP, another significant trend you need to be aware of is the new tax regime introduced in the Budget 2023. According to this, ULIPs with annual premiums exceeding Rs 2.5 lakh will be taxable at 10% on capital gains at maturity. That means if you invest more than Rs 2.5 lakh per year in a ULIP plan, you will have to pay tax on the profit you make from the fund. This is similar to the tax treatment of equity mutual funds, which are also taxed at 10% on capital gains exceeding Rs 1 lakh in a financial year.
This change will significantly impact the returns and choices of ULIP investors, especially the high net-worth individuals (HNIs) who invest large amounts in ULIPs. If you are one of them, you must plan your investment strategy accordingly. You can either reduce your premium amount to below Rs 2.5 lakh per year or diversify your portfolio among different ULIP plans with different premium amounts. You can also opt for ULIP plans that offer partial withdrawal or switching options to manage your tax liability and optimise your returns.
Trend 3: Life-stage ULIPs
The third trend you need to look out for in 2024 is the emergence of life-stage ULIPs. These ULIP plans cater to investors’ changing needs and goals at different stages of their life. Life-stage ULIPs automatically adjust the fund portfolio’s equity-debt ratio based on the policyholder’s age and risk profile. That means as you grow older and your risk appetite decreases, the ULIP plan will reduce the equity exposure and increase the debt exposure. This way, you can balance the risk and return of your investment and achieve your long-term financial objectives.
ULIPs are a great way to invest your money and secure your future, but you need to be aware of the latest trends and developments in the ULIP market. The year 2024 is going to be a crucial one for ULIP investors, as there are some significant changes and innovations that will affect your returns and choices. You need to look out for the return of mortality charge, the tax on capital gains, and the life-stage ULIPs and plan your investment strategy accordingly.