ULIP Investments to Beat Inflation

When we’re looking for avenues to invest our money in order to meet our financial goals or for long-term wealth creation, we tend to err on the side of caution. After all, it is hard-earned money and we want to make sure that it yields safe and steady returns, and that our financial future is protected. However, there’s a crucial aspect of investing that many of us don’t take into account: inflation.

Inflation-proofing your investments

Every year, one unit of currency is able to buy fewer and fewer things due to inflation. Simply put, this means that your Rs 100 note will only be worth Rs 95 a year from now if inflation is 5% – effectively reducing your purchasing power. Let’s understand this in the context of investments. Suppose you put your earnings in a savings instrument with a 6% rate of return. You may receive returns from this investment, but if the rate of inflation of 8%, you are still losing to inflation. Although your corpus is growing by 6%, the value of that money has significantly eroded because the cost of goods and services has risen by 8%.

Therefore, while analyzing your investments, it’s imperative to focus on your real returns, which is the value of your returns after accounting for inflation. You can do this by including investments in your portfolio that are likely to beat inflation, or have historically done so. The key is to invest in assets that allow your corpus to grow at a faster rate than inflation is. You should ensure that your average returns over a long-term investment beats inflation by 2-3%. Historically, investing directly in equities can beat inflation over the long term, but if you’re looking for something that’s lower risk and can still outgrow inflation, you can consider investing in a Unit-Linked Insurance Plan (ULIP), such as those available on Bajaj Markets.

What is a ULIP?

A Unit-Linked Insurance Plan is an innovative product that offers you dual benefits of insurance and investment. By investing in ULIPs, part of your premium will be utilized to provide you access to an insurance cover, and part of your premium will be invested in equity, debt, or hybrid funds of your choice.

Source: BankBazaar.com

How can ULIPs help you beat inflation?

• Market-linked returns:

One of the biggest draws of a ULIP is that it provides market-linked, inflation-adjusted returns because it allows you to invest in equities with relatively low risk. As mentioned, equities tend to generate higher returns than any other asset class over the long-term and also beat inflation, making this product an attractive investment opportunity. And because it is a flexible product, it allows you to mix and match your assets, diversify your portfolio, and hedge against market risks.

• Longer lock-in period:

As a product, the ULIP is structured for goal-based planning. The purpose of investing in a ULIP is for the fulfilment of specific mid- to long-term goals such as buying a house, starting a family, or retiring. That is why ULIP plans are designed to be truly lucrative only if you invest for a minimum of ten years, and they have a lock-in of five years, allowing you to systematically invest to build your wealth for specific life and financial goals. Therefore, ULIPs encourage investor discipline and help inculcate long-term investment habits, allowing the power of compounding to work its magic. Equities, too, will only outperform inflation over a longer period.

• Tax benefits:

You can enjoy ULIP tax benefits along with your investment. If you invest in a ULIP, you can claim up to Rs 1.5 lakh in your annual tax return under Section 80C of the Income Tax Act. Benefits such as these essentially allow you to minimize the impact of rising prices. You are also entitled to tax-free withdrawals. Through its insurance component, you can also rest assured that the financial future of your family is secure.

To avail these benefits and more, you can look at Bajaj Allianz ULIP plans available on Bajaj Markets. Whatever you choose, do remember that while you’re analyzing your investment portfolio, make sure that you stay one step ahead of inflation for meaningful and substantial wealth creation.

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