Short-term investment plans are best for individuals who desire to grow their wealth in a very short period of time, typically 3-5 years or even shorter.
Long-term investment plans are best for people who are dreaming of big plans.
Mutual funds, stocks, bonds, and retirement plans are some examples of long-term investment plans.
ULIPs or Unit Linked Insurance Plans are a cover-all life insurance cum investment product.
ULIPs are an ideal option for long-term investors who desire to take maximum tax relief.
Are you again stuck between what to pick – long-term investment plans or short-term investment plans?
You are not alone in this; there are 30.7% of millennials who lack awareness of investing plans and hence could not plan for retirement (Source: Mint).
But not any more, as I have come up with the solution called ULIPs (Unit Linked Insurance Plans).
This scheme acts as a substitute for investors who seek an equitable solution, i.e., who are seeking insurance as well as investment benefits.
Curious to know more about this plan and how ULIPs fare in comparison with short-term and long-term investment plans? Go through the blog!!
What Are Short-Term Investment Plans?
Individuals who desire to grow their wealth in a very short time, typically 3-5 years or even shorter, Short term investment plans are what they need.
The primary goal includes liquidity and immediate returns, which allow them to fulfill financial needs like spending on vacations, buying gadgets, or saving for emergencies.
To help you understand more about it, below I have mentioned the characteristics of Short-Term Investment Plans:
Greater Liquidity: Such investment schemes are invested in such a manner that they can be converted into cash at will without suffering a loss of any value.
Less Risk: These plans come with lower risk because they will inherently be less risky for a shorter duration.
Lower Returns: These schemes are sure to yield lower returns compared to their long-term investments, as they have a lower risk nature.
Some of the popular short-term schemes are fixed deposits, money market funds, short-term bonds, and savings accounts.
What are Long-Term Investment Plans?
Now, as we jump to long-term investment plans, these are to create wealth in the long run, i.e., 5, 10, or 20 years.
These schemes are best for those with big goals like retirement, purchasing a house, or your child’s education.
Due to its longer horizon, withstanding market volatility, a long-term plan can even gain more.
We have also mentioned features of Long-Term Investment Plans for better understanding:
Long-Term Wealth Accumulation: They are applied for long-term wealth accumulation and are normally riskier and more volatile, and sometimes with higher returns.
Compounding Advantage: The longer the investment term, the more you are favored by the compounding advantage. That means that your plan earns interest on both the original deposit and the previous dividends.
Tax Benefits: Tax benefits are a characteristic of all long-term plans, either in the form of reduction or exemption.
Here are some examples of assets that can be categorized as long-term investments: mutual funds, stocks, bonds, and retirement plans.
Where Do ULIPs Fit In?
ULIPs or Unit Linked Insurance Plans serve as an all-encompassing life insurance policy alongside investment.
Though still receiving life coverage, you actually invest in multiple market-linked schemes like equity, debt, or balanced schemes with the ULIP plan.
The main advantage of this scheme is that they are two-for-one product, and offers the insurance cover facility along with money for wealth accumulation.
These are generally considered long-term investment schemes, but they have components that can be utilized for short-term needs as well.
The data below shows that the global unit-linked insurance market size is projected to reach $2309.7 billion by 2032.
ULIPs as a Long-Term Investment Option
The majority of ULIPs are long-term savings plans for a minimum period of a 5-year years or even more.
These are thus suitable to overlap with wealth accumulation goals, like retirement savings or creating an economic buffer in the future.
Wealth Accumulation through Market Exposure
ULIPs expose your money to the debt and equity markets, so your money has the chance to grow in the long run.
Your investment value rises with the length of your investment, due to appreciation in the market, impacts of compounding, and other factors working in your favor.
Tax Relief
ULIPs are exempt from tax under Section 80C of the Income Tax Act, and you can invest a maximum of ₹1.5 lakh every year.
The expiry proceeds are also tax-free purely under Section 10(10D), provided some clauses are fulfilled.
This means that ULIPs are a great choice for long-term investors who need optimum tax benefits.
Tailored Fund Options
You have the option to choose your investment ratio based on your risk profile and investment horizon.
Be you are looking for a higher risk associated with equity funds or the security of debt funds, you can pick and choose.
ULIPs allow you these choices to manage your portfolio strategically for long-term wealth creation.
Insurance Cover
Unit-linked insurance plans are known to involve an investment component and life insurance.
That’s why they offer the financial security of your family in the event of a premature death, as well as further security for long-term financial planning.
Lock-In Period
A majority of ULIPs have a lock-in period of 5 years and do not allow the investments to be withdrawn.
That is before the period expires, which is exactly in line with long-term wealth creation objectives.
Do You Know? ULIP plans were first introduced in India in 1971 by the Unit Trust of India (UTI).
ULIPs as a Short-Term Investment Tool
Even though ULIPs are traditionally best suited for long-term growth, they do have some features that would appeal to short-term investors too, but at a cost.
Switching Flexibility of Funds
The best advantage of a ULIP policy is that you have a switch facility that will prove to be useful for short-term investors who would like to benefit from market opportunities.
You can move your investment from one fund to another if, at any moment, you believe there is an advantageous trend in equities or interest rate conditions favorable toward debt markets.
Liquidity Option
ULIP schemes provide partial withdrawals after a lock-in period has passed (usually 5 years).
Policy loans allow investors to access the cash value at any time and are particularly beneficial.
Also, be mindful that taking out a withdrawal may negatively impact your returns, particularly if the market is in the red at the time.
Short-Term Capital Gains Tax
The biggest shortcoming of investing in ULIP schemes in the short run could be the tax policy.
The gain becomes short-term capital gains (STCG) tax if you withdraw or transfer your money after three years.
This may eat into the return, so ULIPs may not be that good for plans including short-term returns.
Early Withdrawal Charges
ULIPs also levy some fees, such as premium allocation charges, administrative charges, and fund management charges.
The charges are pretty high in the first few years of the policy, which acts as a demotivating factor for short-term investors.
Conclusion: The Verdict on ULIPs
In short words, ULIP possesses a wonderful balance of investment and insurance that is well worth it for long-term or medium-term planners.
And if you are in search of a short-term investor, well, go somewhere else for some other type of investment plan.
But as one is an investor that requires a combination of life coverage and accumulations over long periods of time, ULIPs might be of extreme reward.
FAQ
Are ULIPs good for the long term?
Yes, as you invest in ULIPs, you can enjoy the potential, including long-term investment plans.
Are short-term investments worth it?
Short-term investment plans are worthwhile for individuals desiring to grow their wealth in a short time.
Where Do ULIPs Fit In?
ULIPs are primarily designed for long-term investments, which offer a combination of life insurance coverage.
John is a crypto enthusiast, Fintech writer, and stock trader. His writings provide guides to perform your best in the crypto world and stock planet. He is a B-Tech graduate from Stanford University and also holds a certification in creative writing. John also has 5 years of experience in exploring and understanding better about the FinTech industry. Over time, he gained experience and expertise by implementing his customized strategies to play in the crypto market.
