How ULIPs can help you have a happy retirement

Financial experts advise against depending only on private savings and pension plans for a comfortable retirement. It is time to look at ULIPs.

Many people planning their retirement at the current moment have built a large savings fund from their income and/or invested in good pension plans for the future. Both are excellent options and must be pursued by every potential retiree. But the question to ask is: Are these enough?

With living costs rising every day and inflation showing a constant upward trajectory, it is vital to look at investment options that can beat inflation and offer good returns. You may have invested in a bank fixed deposit or must make regular contributions to your PPF account. But when you retire, will the monies from these instruments help you tide over a financial crunch?

It is time to look at Unit Linked Insurance Plans (ULIPs) to create a retirement corpus.

Why invest in ULIPs?

Many would be terrified about investing in equity-linked securities, especially in the context of retirement planning. But the best ULIP plans for retirement are aimed at further lowering the inherent risk while offering excellent returns on investment.

Unit-linked pension plans help you build a large corpus for your retirement. Imagine if you invested a lump sum amount of Rs 50,000 at 14% interest for 30 years. After deducting tax, the returns on the ULIP would amount to about Rs 25 lakh. Processing and other charges are lower on ULIPs than on other equity-linked investments.

Besides, you have the option of switching your ULIP investment to debt markets if you do not wish to invest in equity markets. You can switch back to equity markets if they are performing well. In all, you can switch your fund options up to four times a year. Hence, you are assured of high returns on investment. However, it is better to entrust this task to the fund manager to avoid switching at the 

wrong times in the market cycle.

Even more importantly, the best ULIP plans give you the option of increasing your investment size in the ULIP pension plan. You can do this if you have extra income in the future, or if you have gained returns from another investment that you wish to invest in the ULIP. Hence, you get higher returns by the time you retire.

If you are on the lookout for the best ULIP plan for retirement, we recommend Wealth Max Plan. It is a single premium ULIP that gives the option of future top-ups, plus the freedom to partially withdraw against the ULIP in an emergency. Also, the plan provides tax deductions under Sec 80C and 10(10D) of the Income Tax Act, 1961.

Loan against shares: Which companies are the top performers?

Reputed financial institutions and banks in India have upped the ante on extending loans against securities in India.

As expenses go up every single day and consumers look to create new channels of funding for personal or professional needs, there is a rising trend to seek hitherto unconventional borrowing methods.

This has led to consumers exploring funding through asset backed means. Asset backed loans comprise such instruments as owned gold, shares, equity mutual funds, exchange traded funds (ETFs), bonds, Government securities, etc. Taking loans against securities is fast becoming popular among businesspersons and even private individuals in India. These means are explored when conventional loan methods may not be available or may not be effective. Normally, loans against securities are borrowed for a shorter period of time.

The big guns in the loans against securities universe

Responding to consumers’ growing need to borrow loans against securities, reputed banks and financial institutions in the country have created a range of excellent loan products. While consumers use these loans for their needs, several banks and NBFCs have emerged as key players in this space.

The big players in the loans against securities arena are:

• IDBI Trusteeship
• Aditya Birla Finance Limited
• Axis Bank
• Axis Finance
• IL&FS Trust
• Bajaj Finance
• Citicorp Finance India
• Kotak Mahindra Investments
• Tata Capital Financial Services
• L&T Fincorp

How loan against securities work

You may pledge your securities – shares, gold, bonds, Government securities, et al – the lending institution for a certain tenure. The securities are then valued and the loan amount is issued to about 50% to 70% of the securities’ value. The borrowers’ credit history also plays a factor in the approval of the loan.

In India, the top performers in loans against securities are measured against their cumulative lending per financial quarter. 

10 most popular loan products

Here’s a look at the most popular loans being availed by different segments of the population in India today, to fund both personal and professional pursuits:

1. Home loans. These are the most popular loan products in India. They are loans extended for the purchase of new or resale property. They are secured loans with a lower rate of interest than other products such as personal loans.
2. SME loans. These are loans extended to businesses in the MSME sector so that they can scale up operations and achieve their goals. The loan amount can be used to buy new machinery, bid for a prominent contract or even purchase new property.
3. Loans against property. This is a secured loan, but it differs fundamentally from home loans. In this loan, the owned property is mortgaged to the financing institution for a certain tenure. The loan amount is fixed at about 70% of the property’s value at the time of application. The money can be used to buy new property or make large business payments.
4. Personal loans. These are unsecured loans with a high rate of interest. They are typically extended against the applicant’s credit history and income capacity, for a period generally not extending five years. The money can be used to fund child’s education or wedding, or personal medical procedure, etc.
5. Business loans. These are offered to businesses in both the urban and rural areas at a slightly higher rate of interest than home loans or loans against property.
6. Commercial vehicle loans. Some businesses require their own vehicles for the daily transport of goods and staff. These vehicles may comprise mini-vans, trucks, jeeps, SUVs or even trailers.
7. Two wheeler loans. These are useful for people in the rural areas, who find it easier to navigate bad, narrow roads on two wheelers. Premier financial institutions in India have made the two wheeler loan application process extremely simple.
8. Education loan. Education loans are popular products for those families wishing to send their children to national or foreign universities for higher education.
9. Rural housing loans. People in the rural hinterland are now able to buy their own land or ready houses on the basis of rural housing loans. The loan amount is given up to 70% of ready homes and up to 80% of self-constructed homes.
10. Rural business loans. Small and medium businesses in the rural areas of the country are now able to set up small office spaces, buy factory space and even invest in machinery through rural business loans.

Loan against property: How it helps get a new business off the ground

Entrepreneurs can look at loan against property as the primary seed money for their business. We explain how these loans work.

The first question facing any potential entrepreneur is this: ‘How will I start the business?’ The question is not related to a lack of business ideas; it pertains to a funds crunch. Many businesspersons are hampered by a lack of money – hence, they are unable to get their business idea off the ground. They may either borrow seed capital from friends and family, or take a personal loan.

But there is a better way to get funds quickly and without paying as much interest as one does on a personal loan. We refer to the ‘loan against property’, a solution that can help get one’s business up and running.

How it works

The loan against property is a sum of money that the lending institution grants an applicant who pledges their owned property for a certain amount of time. It is different from a traditional home loan. The loan against property is a secured product, since one pledges the property as collateral. This is how it fundamentally differs from a personal loan, which is an unsecured loan product.

The features of loans against property

• Though slightly more expensive than a home loan (in terms of interest payable), the loan against property is more affordable than a personal loan.
• The factors that normally affect the loan amount are: Whether the property is residential or commercial, location, age, rented/vacant/self occupied, etc.
• The lending institution conducts its own valuation and bases the loan amount on the lowest evaluation. Normally, the loan amount does not exceed 70% of the property value in most cases.
• The tenure for these loans is often smaller than those of home loans, and larger than those of personal loans.
• The property documents remain with the financing institution till such time that the loan is repaid, but it does not exercise ownership over the property.

Repayment capacity is also an important factor in deciding if a loan against property is a good choice or not. A first time entrepreneur with limited prospects and erratic cash flows might find it difficult to repay the loan. For entrepreneurs with good business prospects, however, this is an affordable funding option. If repaid regularly and with partial pre-payment at regular intervals, the funds from the loan against property can literally help take one’s business to the next level.