Easing Retirement Pangs

Retirement plans

If you are planning for your retirement, settle for unit-linked insurance or pension plans offered by fund companies

Another avenue of investments that can help you save on taxes are unit-linked plans and pension plans. Besides forming a part of your retirement planning, these also offer tax rebates under Section 88.

Under section 88, you can claim a 20 per cent rebate on tax if your annual income is less than Rs 1.5 lakh. And you can claim a 15 per cent rebate if your annual income falls between Rs 1.5 and Rs 5 lakh for investments upto to Rs 70,000.

 

While most insurance companies offer Unit-linked insurance plans, among mutual funds, the Unit Trust of India (UTI) is the only fund to offer this product. In fact, the UTI was the first to introduce a unit-linked insurance plan with their scheme ULIP 71.

In a unit-linked insurance plan, the premium you pay is converted into units. While some units go into providing risk cover, others are invested in financial markets. As in the case of mutual funds, the investible portion of a unit-linked insurance plan is invested in a basket of securities. Investors can choose between funds that predominantly invest in equity, debt or a mixture of both (called the balanced option).

Besides, they can also switch across options when their risk profile undergoes a change. Unit-linked plans allow investors the flexibility of increasing their contribution during the cover term. These plans also allow you to withdraw money after a minimum lock-in period.

The downside of this product is that if market conditions turn unfavourable, there could be an erosion in unit value at the time of surrendering the policy. Apart from administrative charges, the insurer also levies a mortality charge. The mortality charge goes towards providing a life cover. Therefore, higher the life cover, higher is your mortality charge. The charges involved in investing in unit-linked funds