Unit-Linked Insurance Plan or ULIP offers dual benefits of insurance and investment. However, owing to its market-linked structure, it is usually wrongly titled as a risky investment.
The truth is that ULIP is not a risky option if you clearly understand the dynamics of the market. You should know when and where to invest.
Tread smartly in balancing the funds and you will get good returns without any risk. There are various options which if exercised judiciously can insulate ULIP from market volatility. Let’s understand this in detail.
ULIP is a transparent structured policy, which means all charges and commissions are clearly mentioned in the benefit illustration.
Insurers send daily NAV updates alongwith quarterly and yearly reports on the performance of funds.
It means you can keep a watch on your investment and make changes accordingly. ULIP offers a wide range of fund options, which are detailed below-
|Fund Name||Nature of Investment||Risk Type|
|Equity Funds||Investment is done in company stocks to achieve the aim of capital appreciation||Medium to High|
|Balanced Funds||It combines equity investment with fixed interest instruments||Medium|
|Secured Funds (also called cash fund)||Investment is done in bank funds and money market||Low|
|Debt Funds (also called income, bond and fixed interest fund)||Investment is done in corporate bonds, government securities and other kinds of fixed income instruments||Medium|
Invest in any fund options based on your risk appetite. Make sure to check the past performance of the fund before predicting on its future behavior.
Switching to Ride out of a Volatile Market
Fund switching is a convenient way to protect your investments from market fluctuations and maximize returns by striking a perfect balance between equity and debt.
For instance, if you foresee a dip in the stock market, you can switch money from a fund with 100% equity to a balanced portfolio which has 60% equity and 40% debt.
Similarly, when you are approaching a milestone in your life where finances are required, like child’s education or marriage, you can move a portion of the investment to debt/liquid funds.
This will ensure that a large corpus is available at the time of need.
If you are not market-savvy or don’t have the time to keep a watch on the market, you can opt for the asset allocation fund option.
On your behalf, fund manager will switch between equity and debt after considering the overall market scenario. ULIPs allow a certain number (depends from company to company) of free switching options in a year.
You can redirect all future premiums to different funds chosen by you during inception of the policy, while keeping the existing units intact.
If you think that the market isn’t performing well, you can redirect your future premium to a less-risky fund.
Once your funds have built up, you can redirect the premium to balanced funds and enjoy substantial returns on your investment.
In a nutshell, ULIP is a long-term product that involves commitment and disciple. Those who don’t have market understanding or time can take the help of insurer’s fund managers.
Go ahead, invest in ULIP and exercise any of the above option, if required, to keep your investment safe.
Curated from Be a Smart Investor- Manage ULIP Well