What are the advantages and disadvantages of investing in ULIPS?

A unit Linked Insurance Plan (ULIP) is nothing but an investment product that offers you the benefit of investment in the capital markets along with insurance. It's a combination that very few instruments can offer.

Take a look at some of the advantages and disadvantages of an ULIP.

Advantages of an ULIP

One of the advantages of the ULIP is that it can offer you superior returns depending on the fund that you invest in. For example, if the fund you have chosen has heavily invested in the capital markets, chances are that if the stock markets do well, your fund may also do well.

The other advantage of an ULIP is that it provides insurance cover as well. The insurance cover may not be as great as a term plan, but, it should be good enough. The above are the two major advantages of an ULIP.

Disadvantages of an ULIP

One of the biggest disadvantages of an ULIP is that the returns cannot be guaranteed. For example, if you have chosen an ULIP that invests bulk of the money in equities and the shares are not doing well, chances of losing money cannot be ruled out. This is one of the biggest risk and perhaps the only disadvantage that one can see from an ULIP.

Other features of an ULIP

In an ULIP one can make partial withdrawals. This means if you have invested a sum of Rs 10,000, it is possible to withdraw Rs 5000 from the same. Also, in case you are not satisfied with the policy you can ask for a withdrawal within 15 days from receipt of the policy. Another feature of the ULIP is that you can switch from one fund to another. However, the feature should be available for a successful switchover.

Conclusion

ULIPs offer you a combination of insurance and returns. If you have invested in an ULIP that parks a substantial money in equities, there is an element of risk in the product. Of course, if capital markets do well your fund could generate a superior return as well.