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Benefits of Unit Linked Pension Plans |
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Their was a time when only conservative retirement/ pension plans were available. In the conservation pension plans their use to depend on the bonus declared by the pension company on the respective pension scheme. With time , every one has realized the importance and power of investment in stock market. Investment in stock market gives extremely returns for pension plans. Tough under the conservative pension plans their are some pension plans which give the guaranteed returns but the guaranteed returns are very small as compared to returns from stock market under the unit liked pension plans. Now, as the scenario has changed and ULIP gives an option of higher growth, higher wealth creation over a period of time. Unit linked pension plans are similar to Unit linked insurance plans. Under this plan some portion of premium is allocated towards insurance and rest goes for pension contribution which is invest into the stock market via mutual funds in scheme which is the best according to the fund manager. The net asset value of the investment grows with the growth in the fund performance depending upon the performance of the companies in the money is invested. under theses scheme one has an option to withdraw the entire amount at the time of retirement of withdraw partial amount take the rest of the amount as monthly pension or monthly retirement income. Under the unit linked pension plans the investor bears the investment risk. the returns are directly related with the fund performance in the stock market and growth of the companies in which the money is invested. Its important that you must choose a fund with the best debt equity mix. I would suggest that if you are planning for investment for a period of 20 to 25 years you can go for unit linked pension plans because in the longer run no other instrument can give the higher returns as compared to the risk involved. |
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How to choose the right pension ULIP. Choosing the right and the best pension ULIP is very important as once chosen you would need to stick to it for at least for some years. Retirement age- Its very important that you should know that at what age you plan to retire. Once you have decided at what age you prefer to retire you can choose you ULIP accordingly. The policy you choose should allow you to advance or delay your retirement. Go for the best investment available.- you should know that some portion of premium of all ULIP plans also goes towards insurance coverage. i would suggest that you should try to take a plan in which the least amount goes towards the insurance coverage and most of the amount goes as investment for retirement. There, it would maximize your returns over a period of time. Try to keep the ration if possible 95:5 for pension: insurance. Right debt: Equity mix- Its important that you choose the right debt equity mix for your ULIP Plan as I think by now you understand that the period for which you plan to invest is quit long and therefore, the you can afford to keep a high equity ration as compared to debt. As the investment is for longer periods any fluctuation in stock market and economy would not not affect the returns. We all know that over a long period only stock market may gives the highest returns. Investing in equity would ensure higher wealth creation as compared to any other mix. Though the risk is high but only in short term. Therefore, I suggest that you may go high equity exposure. Checkout the charges- Don't miss this. Its very important that you must understand the cost structure of the ULIP Plans. Remember , you agent may not tell you everything about the cost structure. You must checkout it thoroughly by yourself. Check out the entry load, Exit loan, Annual charges. Make sure that the fund you are choosing does not have annual charges more that 1 %. You also keep a close check on management and administrative charges. they bite the most, they are part annual charges. The fund you choose should have lowest management and administrative charges. Remember , Plans fro same company may have different cost structure. Insurance Company- I would suggest that you take the quotation from several companies and compare the retirement ULIP plans , understand the cost structure of all the plan and than choose a plan which suits you the best. |
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