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A question that commonly arises among investors with regards to ULIP is “What is the right time to exit ULIP?”. Read this post to find the answer.
Although primarily an insurance product, many policyholders consider ULIP as a lucrative investment option. Just like every other type of investment, you should know about the right time to enter and exit a ULIP. The life insurance component of ULIPs means that the right time to invest in them is as early in life as possible.
But what about the exit? When is the right time to exit ULIP? When will you get returns from investments in ULIP? Let us find detailed answers to these common questions-
Lock-in Period of ULIPs
As per the changes made by IRDAI in 2010, the lock-in period of ULIPs has been increased from three years to five years. To avail the tax benefits and avoid surrender fee, make sure you only exit the investment after five years.
Also, note that even if you surrender the policy before the lock-in period ends, you will only receive your investment after the completion of the 5-year lock-in period. Throughout this period, your money will not remain invested in the fund or earn market-linked returns.
Your investment will be transferred to the DP (Discontinued Policy) fund of the insurance provider where it will only earn minimum interest.
Withdrawal After Lock-in Period
Many investors withdraw their money as soon as the lock-in period of 5 years is over. But while you will not be required to pay any surrender fee as the lock-in period is over, you should know the ULIPs have front-loaded charges such as fund management fee, fund allocation charges, policy administration fee, and more.
Their front-loaded nature means that most of these charges are paid by the investor in the first few years of investment. The charges are deducted either by NAV adjustment or unit cancellation. Over time, these charges reach a point where they do not impact your fund value.
So, while a fund might be delivering excellent returns on paper, the actual returns can vary significantly when you take these charges into account.
ULIPs are Long-Term Investment Products
ULIP investment is a long-term investment. It is highly recommended that you remain invested in ULIP for at least 10-15 years or more to achieve long-term goals, such as financially stable retirement, child’s education or marriage, etc.
By remaining invested in ULIP for more than 10 years, the effect of charges on your total investment is reduced significantly, and the returns too would mostly be higher. If the fund value is higher than your expectation, stay invested as it might deliver better returns.
Even if the fund value is low, remain invested as the market will revive and deliver higher returns in the longer run.
What Should You Do?
While you do have the option to withdraw your investment made in ULIP even within a year, it is advisable to remain invested until the lock-in period is over.
It would be even better if you invest in ULIP with an investment horizon of 10-15 years as they are long-term products that have decent return potential but only when given adequate time.
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