As a parent, you would always want the best for your child. Consequently, their higher education is one of the most significant investments you can make for their future. Education costs are rising rapidly, and it’s never too early to start planning for your child’s education. One option you might consider is Unit Linked Insurance Plans or just ULIPs. Such plans offer investment and insurance while accompanying tax benefits in India. In this blog post, we’ll discuss ULIP plans and how they make for great investment options for your child’s future.
What is the main purpose of ULIPs?
Financial solutions known as “Unit Linked Insurance Plans (ULIPs)” combine the advantages of insurance and investing. Depending on the risk tolerance of the policyholder, ULIPs may invest in equities, debt, or a mix of these two funds. The premium is invested into market instruments after the deduction of applicable charges. The policyholder has a choice of funds to invest in, and the returns are based on the state of the market.
Note: You can change your investment options based on your needs and risk tolerance. The first thing an investor should know is that ULIPs work in conjunction with investments in market-linked financial instruments to help build long-term wealth. The main feature of ULIPs over traditional mutual funds is that there is no tax burden, which is always fantastic and is why they are more highly recommended.
Benefits of ULIPs for Your Child’s Education
ULIPs come with several benefits for investing in your child’s education:
- The advantage of the flexibility
It offers a variety of investment alternatives, including debt, equity, or a combination of the two. In addition, policyholders can change funds based on their preferences and level of risk tolerance. This flexibility helps the policyholder maximize returns while minimizing risks.
- For prolonged support, opt for Life Insurance.
ULIPs come with life insurance, providing financial protection to the policyholder’s family in case of any unforeseen circumstances. Furthermore, in the unfortunate event of the policyholder’s untimely demise, the sum assured is paid to the nominee, ensuring financial stability.
- How you can avail of ULIP tax benefits
These plans come with tax benefits, as noted in Section 80C of the Income Tax Act, allowing policyholders to avail of tax deductions up to Rs. 1.5 lakh on their taxable income. Additionally, the returns on ULIPs are tax-free under Section 10 (10D) of the Income Tax Act, subject to certain conditions. Hence, ULIP tax benefits are another key reason behind choosing these options for your child’s higher education needs.
Investing in Your Child’s Higher Education Using ULIPs
- How Investing Early is always good.
The earlier you start investing, the longer the time horizon your investments will have to grow. ULIPs offer the benefit of compounding, where the returns on investments earn interest, and the interest, in turn, earns interest. So starting early can help you accumulate a significant corpus over the long term.
- The most low-risk option – Debt Funds
These debt funds invest their capital in money market instruments, bonds, and other fixed-income products. For people who desire a consistent return on their investment, these funds are a low-risk choice. In addition, debt funds are great for making quick purchases or incorporating them into a well-balanced portfolio.
- Try and Invest in Balanced Funds
In order to balance risk and return, balanced funds invest in both equities and debt assets. They are great choices for people who are risk-averse and need a consistent return on investment. Moreover, they allow you to switch between debt and equity funds based on prevailing market conditions.
- For the highest returns, invest in Equity Funds (Higher risk)
Equity funds invest primarily in stocks, providing higher returns but also coming with higher risks simultaneously. These funds are suitable for those with a higher risk appetite and a longer investment horizon.
- Invest in Child Plans
Many insurance products come in the form of child plans that are specifically designed to meet educational needs in the future. These plans offer the option of investing in equity, debt, or a combination of both, based on the child’s education needs and parents’ risk appetite. Child plans also come with features such as partial withdrawal and premium waiver in case of the policyholder’s untimely demise.
- Use Tax-Free Proceeds to Repay Education Loans
If you have taken an education loan to fund your child’s higher education, you can use the tax-free proceeds from ULIPs to repay the loan. This can help you save on interest costs and also get tax benefits.
Summing Up
To put it bluntly, ULIPs can be an effective way to fund your child’s higher education while also taking advantage of tax benefits. However, choosing the right ULIP plan that aligns with your investment goals and risk appetite is important. Additionally, it’s important to start investing early and use lump-sum payouts wisely. By following these tips and keeping the essential points in mind, you can ensure that your child’s education needs are met in the future.
