Should one invest in ULIP’s

ULIP’s were the most widely sold insurance products some time back. As they served a dual purpose of being market driven as well as giving insurance. They even gave mutual funds a run for their money. Why did this happen, only one reason, the commissions for the agents were good, whereas commissions were stopped for distributors. It was a good sale for the insurance companies as well with very low regulation. This also led to a lot of mis-selling. This is when IRDA stepped in and brought many changes. With changes made by IRDA, the playing field between ULIP’s and Mutual funds has almost become level.

Though the field has almost become level, people have stopped buying ULIP’s as because of mis-selling, people are scared of getting duped again. But now with the changes there is money to be made in ULIP’s as well. Many financial planners would say do not mix insurance with investment. But if you look at ULIP’s only as investment also makes sense, look at it from long term investment point of view.

The biggest advantage of ULIP’s is tax; we keep shifting funds from debt to equity and vice-versa depending on the portfolio value and your requirements. When you do that, you need to sell, and every sale has got tax attached to it. Though tax is not applicable on sale on equity mutual funds after a year, there is tax applicable for debt mutual funds. But in case ULIP’s since there is no sale of units, there is no tax involved. Also maturity proceeds are tax free as long as the premium amount is 10% or less of the insured value.

Most ULIP’s allow shifting of units free of cost certain number of times a year. Though most of you might not do it that often, you should do it at least once a year. Also as you near maturity, start moving from equity to debt, this will help, if there is a sudden crash in the equity market. Looking at the advantages, on should definitely go for ULIP’s but only as supplementary insurance and more from an investment angle.

Making money during inflation

We all know that inflation means rising costs. But is it just costs, costs go up because the facilities that are given along with the item also have gone up. We are paying more for the convenience value as well. Let’s take the case of coffee or tea which you used to have in the good old days. We used to sit in the wayside cafe and chitchat. Today even if we have the same group, we will go to either Cafe Coffee Day or Starbucks. 

Oh! It struck you why you paying so much. You will not go to the same wayside cafe even if it present. Your status has gone up or you have assumed that your same old friend’s status is up. So we tend to showoff and this habit increases our expenses. Life has become more expensive just because of these small showoffs. 

So it is not only inflation, man, I have removed one myth of rising costs only because of inflation. But let us not forget, inflation is real and costs are going you, but we could save some amount by just not showing off. One might save my standard have improved; yes they are and should improve. But has your income gone up by the same percentage? If not improve your standard so that your income also increases.

Wow, your income will go up by just increasing your income or reducing your expenses. We are spending more in the hope of making more money either for ourselves of for our families. How? We send our children to international schools or to foreign countries, only because we want them to grow and by grow we mean make more money.

But this does not happen uniformly, our expenses increase at a faster rate than our income. So we need to work on reducing our expenses. It is always best to first increase your savings and provide enough before increasing your expenses. So how do you do this? One get a second income or as I said earlier, work harder that your income increases.

Now we come to expenses. We need to spend and that is not a choice but a need. But we can do it prudently. So if you need something, buy it, but buy something which will meet its purpose, lets say, you need a vehicle. Now you can either buy a two wheeler or a 4 wheeler. But since your family is big, you need a car. Here you can go for an economical car instead of a luxury car and you save both on cost and maintenance. In this manner, we can keep saving even during inflation. Ultimately money saved is money earned.