Are Market-linked Plans Suitable for First-time Investors?

Highlights

Investing for the first time can feel overwhelming. With so many options and opinions out there, it is hard to know where to start. Some people may...

Investing for the first time can feel overwhelming. With so many options and opinions out there, it is hard to know where to start. Some people may recommend playing it safe with low-risk term deposits, while others may suggest diving right into market-linked funds.

So, is investing in a market-linked plan a good idea for a first-time investor? Market-linked plans do offer great growth potential, which makes them an attractive choice. However, the fear of the ups and downs of the market can be intimidating, especially if you are new to investing. Let's take a look and see whether market-linked plans are actually suitable for first-time investors or not.

Should you invest in market-linked plans as a first-time investor?

The short answer is yes, investing in market-linked funds like Unit-Linked Insurance Plans (ULIPs) can be a good idea for a first-time investor as it allows you to grow your wealth. However, there can be several other benefits of investing in market-linked plans for first-time investors:

1. Multiple fund options

Diversifying your investments is important for managing risk and maximising your returns. However, as a first-time investor, picking and tracking multiple funds can be challenging as you might not have the time or expertise to manage each one separately. This is where market-linked plans like ULIPs come in handy.

ULIPs offer a range of fund options within a single policy, allowing you to invest in equity, debt or hybrid funds. Since all the funds are housed under the same plan, it is much easier to diversify your portfolio without the headache of managing multiple accounts. This simplifies the process and makes it less daunting and more convenient for new investors to spread their risk.

2. Tailor-made portfolio strategies

One of the major advantages of market-linked plans is that they offer tailor-made portfolio strategies. Creating a portfolio that aligns with your goals and risk tolerance is crucial, but as a first-time investor, you might not have the experience to design one on your own.

In this case, investing in a plan that offers ready-made strategies can be incredibly helpful. For example, ULIPs provide a range of different portfolio strategies, from high-risk to low-risk options. If you are unsure about building your own portfolio, you can simply choose one of these strategies crafted by experts. This ensures that your investments are managed professionally and helps you stay on track toward your financial goals without the stress of doing it all yourself.

3. Life cover

Apart from fetching you market-linked returns, plans like ULIPs also offer a built-in life cover. This life cover allows you to secure the financial safety of your family in your absence. In case of an unfortunate incident during the policy term, your nominee will receive an assured payout. This ensures that you not only build wealth for your future needs but also plan for unexpected contingencies.

4. Tax benefits

ULIPs offer dual tax benefits that can boost your savings. This advantage is particularly valuable for first-time investors, as it allows you to save more money and use it for future goals.

Under the current tax laws, you can claim a deduction on the premiums paid up to ₹ 1.5 lakh per year under Section 80C of The Income Tax Act, 1961. Additionally, the life cover paid to your nominee in the event of an unfortunate incident is exempt from tax under Section 10(10D) of The Income Tax Act, 1961.

ULIPs also offer tax benefits on maturity subject to some conditions under Section 10(10D). For ULIPs purchased between April 1, 2012, and February 1, 2021, the annual premium must be less than 10% of the sum assured to qualify for a tax benefit on maturity. For policies bought after February 1, 2021, you are eligible for a tax exemption on the proceeds if the total premiums paid over the policy term do not exceed ₹ 2.5 lakh.

5. Reliability

Investing in market-linked plans, like ULIPs, offered by reputable insurance companies adds an extra layer of security to your investment strategy. These insurers partner with well-established fund houses to ensure that the funds you invest in have been carefully vetted by experts. This significantly reduces the chances of financial fraud.

Choosing a trusted insurer makes you more confident about your investment, knowing that your money is being managed by professionals with a strong track record. As long as you select a reliable company, you can rest assured that your choice is a safe and informed one.

Conclusion

As a first-time investor, it is natural to feel hesitant about putting your hard-earned money into the market. However, investing is a crucial step toward growing your wealth and achieving your various financial goals. Investing sets you on a path to financial freedom and security. So, do not let fear hold you back. Take the plunge, invest wisely and watch your money grow.

(No Hans India Journalist was involved in creation of this content)