Are you a spender looking to save for your short-term goals? ULIPs can be a knight in your armour
Millennials save less than they spend on their lifestyle, less than what they spend on grooming and less than 10% of their income.
India has a total of 440 million millennials, who form 34% of the country’s population — the largest percentage globally. According to a report by Deloitte, millennials save less than they spend on their lifestyle, less than what they spend on grooming and less than 10% of their income. If you go asking your friends whether they are saving any money and you’ll find that their money habits are as botched up as your own. And while it is easy to spend money these days – (it takes less than 10 minutes to book that return ticket to Italy or less than 5 minutes to buy the latest iPhone), it takes millennials too long to realize that they have ZERO savings by the time they turn 30.
Most financial advice available tells you to save for two or three long term goals – an emergency fund, retirement, and your future kids’ education. Let’s be honest - a fully-funded retirement account won't set you up for life if you're drowning in debt and don't have your spending under control.
What you need to know is how to save for your personal five-year plans. You could want to buy a house, take an international vacation, upgrade your drive, or get married – the big things that will happen in the future. But is it necessary to get into debt to pay for all of this? What if we were to tell you that one simple, not-so-secret spell can help you avoid getting that new car financed or putting your wedding on the credit card? There’s no need to get a bigger mortgage rather than putting money down. You’re smart because you know you’re going to need a lot of money in a few years and don’t intend to get trapped into the vicious cycle of debts and credits.
But are you saving enough for it? According to a study conducted by Deloitte *, Millennials are saving on average an 11% of their income. This is drastically lower than what it should be. One should be saving at least 30% of our income after meeting all expenses. That savings should go into a range of different investments.
But first, a thought change – Instead of considering the money you earn to be the solution to your problems, think of it as a tool that can help you build the life and lifestyle you want. This can be achieved through smart financial choices like saving and investing.
The next step is to divide your goals into short-term and long-term buckets and choosing investments that will help you reach them. For short-term investment goals like saving for a car, consider a more versatile instrument – ULIP.
What is ULIP and what are its benefits
Unit Linked Life Insurance Plan or popularly known as ULIPs are amongst the latest financial products introduced for young investors. The policies have been becoming increasingly popular for their dual benefits - they offer investors an insurance cover as well generate returns based on the investments in various avenues.
The key factor that differentiates ULIPs from other modes of investment is flexibility - they allow you to switch between funds and match your risk needs. You can make partial withdrawals (subject to T&Cs) or single lump-sum additions to your premiums and increase your investment amount through top-ups.
Some other reasons that help ULIPs win are as follows:
- ULIPs come with a lock-in of five years which can help you inculcate a habit of disciplined investing.
- They have the potential to garner better returns than any other insurance product because of its equity advantage.
- While term insurance plans address the life cover and tax-saving needs, they do not offer any return. ULIPs, along with a tax advantage of up to Rs 1.5 lakh under Section 80C of the Income-tax Act, 1961 (subject to the conditions/ limits specified therein) are significant for long and short-term goals. Under Section 10 (10D) of the Income Tax Act, 1961, the benefits received from this policy are exempt from tax (subject to the conditions specified therein).
- After the Insurance Regulatory and Development Authority of India rolled out fresh guidelines, ULIPs have become much more investor-friendly than they were at the time of their introduction. These guidelines have reduced costs like premium allocation charges, administration charges, fund management charges, and surrender charges considerably.
- Clearly, ULIPs are a viable investment tool and that’s why many banks and investment companies have attractive plans for millennials looking to invest. So, how does one decide among the various options available? Well, the simplest answer is to go with a policy that suits your investment needs and can help your money grow.
- HDFC Life Click 2 Wealth is a Unit Linked Life Insurance Plan that offers market-linked returns, charges minimally and provides valuable financial protection for you and your family. Depending on your Protection and Investment needs, Invest Plus Option of HDFC Life Click 2 Wealth Plan provides life cover and takes care of your investment needs by providing accumulated Fund Value at Maturity.
Bottom Line: To live a life that you dream of will need you to become a diligent saver and investor early on. Trust us, it’s not a hard thing at all, you just have to make the right financial decisions. Making time about money decisions today will help you use that money in the future.