ULIPs to Boost Returns

Unit Linked Insurance Plans (ULIPs) offer a unique combination of investment and insurance, helping you achieve long-term financial goals.
Check Life Insurance Policies
3 min
31-May-2025
Unit Linked Insurance Plans (ULIPs) are a popular investment-cum-insurance option for individuals looking to grow their wealth while securing their future. However, one of the key concerns for investors is the associated charges, which can impact overall returns. ULIPs come with different charges, including premium allocation, fund management, and mortality charges. Understanding these charges and strategies to minimise them can significantly enhance the ULIP returns on your investment. With the advent of online ULIPs, transparency in cost structures has improved, allowing investors to make better financial decisions. This article explores how ULIPs work, their benefits, and effective ways to minimise costs to boost returns.

What are ULIPs and how do they work?

ULIPs are hybrid financial products that combine life insurance with market-linked investment opportunities. They allow policyholders to invest in equity, debt, or balanced funds based on their risk appetite.

Key features of ULIPs:

Dual benefit of insurance and investment

A portion of the premium goes towards life insurance, while the rest is invested in market-linked funds.

Flexibility in investment choices

Investors can switch between equity, debt, or balanced funds as per market conditions.

Tax benefits

Investments in ULIPs qualify for tax deductions under Section 80C, and maturity benefits are tax-free under Section 10(10D).

Lock-in period

ULIPs have a five-year lock-in period, ensuring disciplined savings.

Market-linked returns

Returns are based on fund performance, allowing potential wealth accumulation over time.

Partial withdrawals

After the lock-in period, investors can withdraw a portion of their funds for emergencies.

Fund switching options

Investors can switch between funds based on market trends without incurring additional tax liabilities.

Key benefits of investing in ULIPs

ULIPs provide a structured approach to financial planning by offering insurance coverage along with long-term investment growth.

Key benefits of ULIPs:

Wealth creation

Market-linked investments help accumulate wealth over time.

Financial security

The life cover ensures financial protection for the policyholder’s family.

Portfolio diversification

Multiple fund options allow investors to balance risk and returns.

Systematic investing

ULIPs encourage disciplined and long-term investment habits.

Liquidity

Partial withdrawals provide financial flexibility after the lock-in period.

Tax savings

Tax exemptions make ULIPs a tax-efficient investment vehicle.

Transparency

Online ULIPs provide clear details on charges and fund performance.

How to choose the right ULIP for high returns?

Selecting the right ULIP plan is crucial to maximising returns.

Steps to choose the best ULIP:

Define financial goals – Identify long-term objectives such as retirement, education, or wealth accumulation.

Assess risk appetite – Choose funds based on risk tolerance, from aggressive (equity) to conservative (debt).

Compare cost structures – Look for ULIPs with lower charges to improve net returns.

Check past performance – Review the track record of the ULIP funds to ensure consistent growth.

Consider fund switching flexibility – Opt for ULIPs that allow easy fund switching based on market trends.

Review policy terms – Ensure the lock-in period, withdrawal conditions, and maturity benefits align with your financial needs.

Look for loyalty additions – Some ULIPs offer additional fund units as loyalty rewards, enhancing returns.

Tips to maximise returns from ULIPs

Reducing charges and optimising fund allocation can enhance ULIP returns.

Strategies to boost ULIP returns:

Opt for online ULIPs – Online plans have lower premium allocation and administrative charges.

Invest in low-cost ULIPs – Choose ULIPs with minimal fund management and policy administration charges.

Leverage fund switching – Monitor market trends and switch funds accordingly to maximise gains.

Invest for the long term – Longer investment durations help in compounding and cost averaging.

Avoid frequent withdrawals – Withdrawing early can impact wealth accumulation and reduce investment benefits.

Monitor fund performance regularly – Keep track of NAV and fund performance to make necessary adjustments.

Utilise top-up investments – Some ULIPs allow top-ups, enabling additional investments without high charges.

Conclusion

ULIPs are a powerful financial instrument that blends life insurance with market-linked investment growth. However, to truly maximise returns, investors must minimise associated charges. By opting for online ULIPs, carefully selecting low-cost plans, and strategically managing fund allocations, investors can enhance their wealth creation potential. Long-term investment commitment, disciplined fund monitoring, and tax benefits further strengthen the appeal of ULIPs in a comprehensive financial portfolio. With the right approach, ULIPs can serve as a high-return, cost-effective investment option for securing financial goals.

Frequently asked questions

Are ULIPs better than traditional life insurance plans?
ULIPs offer both life cover and market-linked investment growth, whereas traditional plans provide only insurance benefits. ULIPs provide higher return potential but come with investment risks, while traditional plans offer guaranteed benefits with lower risk exposure. The choice depends on your financial goals and risk appetite.

What are the charges associated with ULIPs?
ULIPs include premium allocation, fund management, mortality, administration, and policy surrender charges. Online ULIPs typically have lower charges, making them more cost-effective. Investors should compare these costs before selecting a plan.

What happens if I stop paying ULIP premiums?
If ULIP premiums are not paid within the lock-in period, the policy may lapse or switch to a discontinued fund with lower returns. After the lock-in period, investors may have the option to withdraw or continue with a reduced cover. Checking policy terms is essential before stopping payments.

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*T&C Apply - Bajaj Finance Limited (‘BFL’) is a registered corporate agent of third party insurance products of Bajaj Allianz Life Insurance Company Limited, HDFC Life Insurance Company Limited, Life Insurance Corporation of India (LIC), Bajaj Allianz General Insurance Company Limited, SBI General Insurance Company Limited, ACKO General Insurance Company Limited, HDFC ERGO General Insurance Company, TATA AIG General Insurance Company Limited, ICICI Lombard General Insurance Company Limited, New India Assurance Limited, Chola MS General Insurance Company Limited, Zurich Kotak General Insurance Co. Limited , Star Health & Allied Insurance Co. Limited, Care Health Insurance Company Limited, Niva Bupa Health Insurance Company Limited , Aditya Birla Health Insurance Company Limited and Manipal Cigna Health Insurance Company Limitedunder the IRDAI composite CA registration number CA0101. Please note that, BFL does not underwrite the risk or act as an insurer. Your purchase of an insurance product is purely on a voluntary basis after your exercise of an independent due diligence on the suitability, viability of any insurance product. Any decision to purchase insurance product is solely at your own risk and responsibility and BFL shall not be liable for any loss or damage that any person may suffer, whether directly or indirectly. Please refer insurer's website for Policy Wordings. For more details on risk factors, terms and conditions and exclusions please read the product sales brochure carefully before concluding a sale. Tax benefits applicable if any, will be as per the prevailing tax laws. Tax laws are subject to change. BFL does NOT provide Tax/Investment advisory services. Please consult your advisors before proceeding to purchase an insurance product. Visitors are hereby informed that their information submitted on the website may also be shared with insurers. BFL is also a distributor of other third-party products from Assistance Services providers such as CPP Assistance Services Pvt. Ltd., Bajaj Finserv Health Ltd. etc. All product information such as premium, benefits, exclusions, sum insured, value added services, etc. are authentic and solely based on the information received from the respective insurance company or the respective Assistance service provider company.

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