Retirement is a time for peace. You have done your hard work, paid your bills and now it’s the time to enjoy the evening of your life. And one thing you don’t want to be bothered with during your retirement is a money crunch. That is why a retirement fund is a necessity.
What is a retirement fund?
A retirement fund is a savings or investment that is meant to help you with your needs after your retirement. Retirement could mean a sudden stoppage in income and this money is meant to provide for you for the rest of your life.
Now, there are different types of vehicles to invest in for retirement funds. Some pay you a lump sum when you retire, some pays you monthly income after your retirement and some are a mix of both.
ULIPs are one such option.
What are ULIPs?
ULIP means unit-linked insurance plans. They are life insurance policies that offer an investment option as well. That means, when you invest pay a premium for ULIP, a part of it goes for the life cover and the rest is invested in securities.
Just like in mutual funds, the investment is based on a theme and there will be a fund manager to manage your investment.
Even with this advantage, ULIPs give you all benefits of a life insurance policy. Your beneficiary will get financial aid if something happens to you and you can even add riders like in a regular insurance policy.
ULIPs are meant for the long-term. That is why it could be a perfect way to grow your retirement fund. Let’s see why ULIPs are a good option for your retirement fund.
ULIPs for retirement fund
- ULIPs give higher returns than a savings option – For many people, a fixed-deposit is the default option when it comes to saving for retirement. While fixed deposits give you a stable and prefixed interest every year, ULIPs are market linked and it gives your money the ability to take advantage of the market. As said above, a fund manager pools in money from investors and invest it in a portfolio according to the theme of the fund. This gives you the same advantage as of investing in a mutual fund and it could give you much higher returns than a normal fixed deposit or even a traditional life insurance policy.
For instance, FD accounts give you an interest rate of about 6% per annum on average.
That means, if you invest 15 lakh for a period of 25 years, your estimated returns will be about Rs.51 lakhs.
At the same time, if you invest the same amount of money in ULIP, which is known to give returns at a rate of 10% per annum on an average, your returns would be more than Rs. 1.6 crore.
The best thing here is that you don’t need to pay a lumpsum in an ULIP, unlike in a fixed deposit.
If you use an ULIP return calculator, you will understand that even a monthly payment of Rs.5000 for the selected amount of time will give you a return of Rs.15 lakh.
- ULIP gives you a range of options – With ULIP, you can choose to invest in a variety of funds. The funds available are divided into three main categories
- Equity funds – It gives you more returns with a higher chance of risk.
- Debt funds – Lower risk with steady returns.
- Balanced funds – Balanced portfolio, a mixture of the above both.
There are a number of further variations under these three groups too and you can select funds that track a theme, a sector, or even an index according to your investment taste.
- ULIP is flexible – Markets can change regularly. That’s why ULIP plans give you the ability to switch funds a limited number of times. That means, if you have selected a fund that is underperforming, you can always go back, do your research and select a plan that works better for you.
- You can top-up ULIP plans – If you can afford a top-up, ULIP gives you the ability to do that and increase your retirement fund growth.
ULIPs are a perfect and one of the most popular options for building your retirement fund. They give you growth and flexibility. If you are planning to invest in ULIP, it’s highly advisable to reach out to an advisor who will help you understand the nuances of the policy better.