Planning for your future has two parts – protecting and growth. These can be addressed individually. But while you search for investment options in the market, you must have stumbled upon ULIPs. They are an investment tool that is the master key to all your plans.
Unit linked Insurance Plan or as popularly referred to as ULIP is an insurance plan where the policyholder pays a premium for insuring their life along with investing. ULIP is an insurance plan which has dual benefits. The insured can avail a life cover along with savings for future using market-linked investments. A small portion of the premium is used to secure the life whereas a major part of it is used for investing in market-dependent instruments.
Using ULIP, you can ensure you get the perfect mix of protection and growth. The various types of ULIP that aid in wealth creation are –
- Equity funds which invest in large-cap and mid-cap funds. They assume the highest risk.
- Debt Funds which Government securities, Money Markets, Corporate Bonds and the like. With a moderate risk, the returns are also limited under debt funds.
- Liquid Funds as the name suggests are short term investments in Treasury Bills and Call Money. The maturity is extremely short and hence used for short term financial goals.
Using the above mentioned ULIP plans, returns can be altered to achieve your life goals. While your life goals decide the different plans that can be opted some points should be kept in mind –
Do not overreact to markets.
It is a human tendency to seek cover when we expect negative outcomes. This phenomenon is observed in case of ULIPs too. Investors switch to a less risky fund during a negative outbreak of information. The downside of switching will affect your returns. It can hamper in achieving the long term goals. Instead, one can opt to switch from the poorly performing funds to funds that are the least affected by such negative market information.
Reviewing asset allocation
Your long term goals make it imperative to check for the fund performance. Rebalancing your funds can be a suitable solution to compensate for any drastic change. Financial experts recommend rebalancing your portfolio only in case a major deviation is observed in the fund value. Minor changes end up in corrective action to the fund restoring it to normal growth levels. Keeping this in mind, ensure you align your investment mix to meet your financial goals. ULIPs offer flexibility to the move between different funds that help in achieving your financial goal.
Changing financial conditions require rebalancing your portfolio. Different goals determine the investment in different funds. For your short-range goal, you can invest in stable and lower risk funds. It will help in earning consistent returns while assuming a lower risk profile.
A situation like a recovery stage of the economy should influence your investment in sector-specific funds that show immense growth potential. Investment in such sectors will cause your fund value to increase manifolds as the markets return to its previous levels.
Using the Features
ULIPs come with varied features like partial withdrawal, variety of funds to choose from, premium payment options and more which can be used to get the most out of it. These ULIP benefits can be customized according to your needs and used in scaling your financial goals. The tax exemption enjoyed at its maturity makes the entire income available to meet your goals. For any short term goals and needs, you can make use of the interim withdrawal option.
Keeping the above points in mind, you can make the best of ULIPs. Select the perfect plan that has all the features that you need.