Your First Paycheck: Waste Or Invest It? Expert Tips For Long-Term Wealth Creation – News18

Congratulations on landing your first job! It’s a remarkable achievement that reflects your dedication and hard work. Now that you’ve taken this significant step forward, what’s next?

Perhaps you’re contemplating further studies to enhance your knowledge and skills, or you’re considering the thrilling path of entrepreneurship, where you can bring your innovative ideas to life. Irrespective of the path you choose, there’s one element that should be an integral part of your life’s blueprint: Financial Savings. I know what you’re thinking, “I’m still in the prime of my youth and thoughts of savings can wait until my forties.”

The concept of savings might not be at the forefront of your mind, particularly when you’re juggling other financial obligations, such as timely rent payments, meeting mortgage payments for your first bike, or chipping away at student loans. However, stepping into working life signifies a new chapter of life, and it’s crucial to consider the role of savings in this narrative. This is where Unit-linked Insurance Plans (ULIPs) come into play, offering an ideal solution for jumpstarting your savings journey.

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ULIPs are a unique financial product that combines the benefits of both insurance and investment. They offer dual advantages – life cover and market-linked returns, making them an attractive option for young adults like you. You can decide how you want your funds to be invested. For equity exposure, funds are invested in the stock market, and for debt exposure, funds are invested in corporate and government bonds.

Let’s dive into the reasons why ULIPs are the ultimate choice for ambitious souls like yourself.

Starting Early: Harnessing the Power of Compounding

One of the key advantages of investing in ULIPs early on in one’s career is capitalising on the power of compounding. By starting at a younger age, you give your money more time to grow. The returns you earn are reinvested, leading to a compounding effect that can significantly boost your wealth over the long-term.

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According to a recent research report, in the last 15 years, the NIFTY 100 index has delivered an average annual return of over 12.3%. In comparison, the NIFTY 50 index has delivered annualised returns of 13.2% over the past 10 years. Now, assuming an annual return of 12%, let’s consider a scenario where you begin investing in a ULIP at the age of 25 with an annual premium payment of Rs 1,00,000 and a premium payment term of 20 years.

By the time you reach 45, your investment of Rs. 20 lakh could potentially grow to around Rs 80 lakh. However, if you start at 35, your corpus of Rs. 10 lakh would approximately grow to just Rs 19 lakh. The lesson here is clear –earlier you start, the greater the growth potential. Your money works its magic by continuously multiplying.

Instilling Discipline: The Path to Financial Success

ULIPs foster discipline, which is essential for long-term financial success. They come with lock-in periods, requiring a certain level of commitment and systematic premium payments. By adhering to this disciplined approach, you develop a habit of consistent saving, which forms the foundation for building a substantial corpus over time. So, unlike other instruments where you could take out your investments depending on the perceived mood of the market, in ULIPs you must consistently stay invested for a minimum period. This helps in compounding, better returns and riding through adverse market cycles.

Market-linked: Seizing Growth Opportunities

As a young investor with a longer investment horizon, you have the advantage of being able to take on more exposure to equities, which have historically delivered higher returns over the long-term. There are various fund options available that allow you to participate in the potential growth of the stock market. ULIPs also provide young investors like you with a remarkable level of flexibility, allowing you to tailor your investment approach to your unique needs and preferences. This flexibility extends beyond fund options and encompasses portfolio strategies designed to maximise your growth potential.

Some of the common portfolio strategies that most insurers offer with their ULIP products include:

Target Asset Allocation: This strategy aims to strike a balance between risk and return. Your investment is distributed across all asset classes based on your risk appetite. For example, your annual premium of Rs 50,000 can be invested in a manner where Rs 40,000 can be apportioned towards equities, Rs 7,000 invested in balanced funds, and Rs 3,000 in debt funds.

Lifecycle-based Portfolio: This strategy considers your age, investment horizon, and changing financial goals over time. The asset allocation here is automatically adjusted in line with your changing life-stage.

Trigger-based Portfolio: This is an event-based investment strategy which rebalances the portfolio on the occurrence of an upward or downward market movement. This strategy automatically rebalances the portfolio with the investors’ active involvement.

Fixed Portfolio: This strategy allows you to maintain a conservative stance by allocating a major chunk of your investments into safer options like debt funds that provide stable returns with lower volatility, ideally suited for older individuals.

Tax Benefits: Keeping More of Your Money

ULIPs provide attractive tax benefits that can optimize your savings. Under Section 80C of the Income Tax Act, investments in ULIPs up to Rs 2.5 lakh per annum are eligible for tax deductions. Additionally, the maturity proceeds from ULIPs are tax-free under section 10(10D) of the Income Tax Act. This dual tax advantage enables you to maximize your savings and enjoy the fruits of your investments without the burden of taxation.

In conclusion, as someone who has just entered the corporate world, you’re at a pivotal point in your life where the decisions you make can significantly impact your future. Investing in ULIPs can provide you with financial security, potential for growth, and tax benefits, making them a perfect fit for your savings strategy. Remember, the journey of a thousand miles begins with a single step. So, take that step today and secure your financial future with ULIPs.

-The author is Chief Distribution Officer, ICICI Prudential Life Insurance Company. Views expressed are personal.

Disclaimer:The views expressed in this article are those of the author and do not represent the stand of this publication.