Everyone dreams of buying a home someday, not just as security and shelter for the family but also for settling down in life. It is a seasoned investment, a long-term financial goal for many people. Are you part of the same brigade, planning to save up for your dream home in the future? Undoubtedly, buying a home is important at multiple levels. Saving up is, however, easier said than done. With all your existing expenses, financial obligations, and other commitments, buying a home may sometimes take a backseat.
If you are disciplined enough to start an investment early on and maintain it smoothly, you could be well on your way to realizing your future goal of buying a home without any hassles. But what should you invest in? There are plenty of long-term investment avenues available in India which can help you build up a corpus for your dream home. Some of the most popular ones are:
- Public Provident Fund
- Government Bonds
- Fixed Deposits and Recurring Deposits
- Mutual Funds
- Direct Equity
- Post Office Savings Scheme
- Liquid Funds
- Unit Linked Insurance Plans (ULIPs)
All of these have their advantages and can be a beneficial addition to your portfolio. Out of these, a ULIP plan holds the distinction of being a type of life insurance policy that gives you the perfect combination of insurance coverage and market-linked investment opportunities to safeguard your family’s financial future while helping you accumulate wealth to meet future goals simultaneously. It can be a suitable option for you if you are looking to accrue funds for buying a home.
How ULIPs Can Help You Save Up For Your Dream Home
In a ULIP (unit-linked insurance plan), you get life insurance coverage throughout the policy tenure, and your money is also invested in market-linked instruments for earning returns. It is a policy with dual benefits suitable for fulfilling long-term goals. The premiums you pay towards the policy are invested in market-linked financial instruments of your choice (from a pool of Equity, Debt, Balanced/Hybrid, or Liquid Funds) after deducting all applicable charges. These investments then generate returns based on the type and performance of the fund you have chosen to invest in. You can use a ULIP calculator to work out your expected future returns.
There are various types of ULIPs available for investors. Single premium ULIPs only require you to pay a lump sum amount on a one-time basis. On the other hand, the regular premium option has you paying the premiums throughout the policy tenure at your preferred payment frequency. You can opt to pay monthly, yearly, semi-annually, or quarterly, based on your financial circumstances and preferences.
There are also ULIPs linked to various life stages. The investments made into ULIPs are divided proportionately into debt, and equity funds depending on the investor’s life stage and risk tolerance levels. For example, equity funds may be the initial focus of the plan when an investor is younger, while there is a gradual shift towards debt funds with age and lower risk-taking abilities.
With a ULIP, it is possible to accumulate a sizable corpus to pay for your dream home in the future. At the same time, life coverage is available for securing your family’s financial future in case of your untimely demise within the policy period. Note that to maximize returns and have a large enough corpus to pay entirely or partially for a house, you must invest early and give your investment sufficient time to grow. You can also calculate the period required to accumulate the desired corpus using a ULIP calculator.
How to choose the right ULIP
Now that you have a clearer picture of how you can invest to achieve your future goal of buying a dream home, here are some tips to help you select the best ULIPs for your needs.
- Loom for Multiple Fund Types and Choices – Always go for a ULIP plan which offers various types of funds to invest in. It will be ideal if you go for plans with a diverse pool of equity, money-market, hybrid, and debt funds that can help you maximize returns based on your tolerance for risk.
- Look for a Plan that Offers More Flexibility- Always choose a plan that gives you considerable freedom in choosing funds and switching between the same depending on market conditions. You should also have the alternative of adding top-ups to the policy premium if you have some extra money to invest. Having the option to let a fund manager manage the fund can prove fruitful in the long run. But on the other hand, if you are well versed with market-linked investments, you can actively manage the ULIP whenever required.
- Understand ULIP Charges – Fees and other charges may vary across ULIPs. However, they cannot cross the maximum threshold as per the specifications of the IRDAI (Insurance Regulatory and Development Authority of India). You must read carefully about the particular charges that your insurer levies on a ULIP, as they can have a minor impact on your invested amount. Although this impact is minimized in the long run, it is still essential to be aware of it to have an accurate idea of your investments and subsequent returns.
- Include Available Riders – You should also carefully check the extent of coverage offered by your ULIP plan. There may be available riders that you can add by paying additional premiums or costs. These may provide coverage for accidental death/disability, critical illnesses, and premium waivers, among other needs. You should choose a plan with options to add these riders and then include the suitable ones at a nominal extra cost.
Remember that ULIPs have a lock-in period of five years, prior to which you cannot withdraw your money. However, you will be able to get tax benefits on the premiums paid yearly (up to Rs. 1,50,000) under Section 80C of the Income Tax Act of 1961. Additionally, the death benefit is also tax-free under Section 10D. As per the latest tax regime, the maturity benefits of ULIPs are taxable as Capital Gains if the total yearly premiums exceed Rs. 2,50,000. Keep all these points in mind while choosing your ULIP. Stay disciplined as an investor with a long term horizon and enjoy the dual benefits of insurance coverage cum investment.