ULIP Plan, Policy, ULIP Investment Tips: It is crucial to understand that, as an investor or insured person, you must carefully monitor your investment portfolio if you have invested in a unit-linked insurance plan (ULIP). It is important to actively manage the ULIP policy to maximise the return on investment.
When you invest in a ULIP, it offers three benefits — insurance protection, wealth creation and tax advantages. Furthermore, ULIP policies allow investors to switch funds at no extra cost to maximize profits.
So, if you are aware of the tips to manage the policy, it is always suggested to have an eagle eye on the amount invested. If you are not up to the task, you can always leave the fund-switching to the ULIP fund manager.
With careful planning and diligent monitoring, one can maximise the returns and accumulate a sizable corpus in the long term to fulfill life goals.
Here, we will tell you how to maximise returns from ULIP and if you put in a bit of time and effort, managing ULIP insurance is not that tough.
How ULIP Investment Works
A ULIP has two components — insurance and investment. The investment component is common among all ULIP plans. The premium of the policy is invested in a range of market-linked funds like equities, debt funds, a hybrid of the two or liquid funds. It is the sole discretion of the investor to decide which funds to invest in, depending on risk tolerance.
1. Equity funds are considered to be a decent option if you have a long-term horizon and are willing to take some risk.
2. ULIPs allow a person to invest in debt funds if the investor has lower risk tolerance.
3. Alternatively, ULIPs also allow to invest in both equity and debt funds for a more well-rounded portfolio.
The returns generated here are based on the performance of these funds.
ULIP – Types Of Funds
1. Equity Funds: This deals primarily in corporate stocks and equities and are high-risk investments. This is the product to choose if you can take on a higher risk because the emphasis is on the growth of the fund, and these funds have the highest returns.
2. Debt Funds: These funds, often referred to as bond and income funds, carry a moderate level of risk and are generally focused on fixed income/debt assets with a medium reward, such as corporate bonds, government bonds, and securities.
3. Liquid Funds: The low-risk investments in ULIPs, often called Cash Funds to Money Market Funds, are concentrated in short-term market instruments such as bank deposits, commercial papers and treasury bills. These are intended for people who don’t want to risk their money on any kind of bonds or stocks.
4. Hybrid/Balanced Funds: This ULIP fund mixes fixed income securities like bonds with equity instruments like business stocks and shares, giving it a medium to high-risk profile.
ULIP Investment Returns – How To Maximise
Three methods exist for managing your ULIP policy
1. ULIP Free Self-Switching
Free self-switching of funds that protects your wealth and maximises profits, according to the terms and conditions of the policy.
An exclusive characteristic of ULIPs is the free self-switching of funds, which gives the investor complete control over optimizing returns and safeguarding their investment.
Using self-switching, you may control how your portfolio performs based on your investment objectives, horizon, and risk tolerance.
Switching funds means that your premium is now being distributed differently across other ULIP funds, such as debt or equity funds. By balancing debt and equity funds, fund switching helps reduce the risk from market fluctuations while maximising returns.
2. ULIP Automatic Switching
Use automatic switching allowing the insurance provider to handle your money. It is suitable for those who don’t have the advantage of time or expertise to manage their investment portfolio.
In this portfolio strategy, the amount invested is handled by qualified fund managers per your chosen pre-set criteria.
3. ULIP Top-Ups
Increase your investment with top-ups when the market is doing well and do not surrender your policy early. The insurance firms offer a top-up option so a policyholder can increase the amount invested in their policy. There are, however, certain conditions when companies provide top-ups.
It is advised not to surrender the policy early so that you can benefit from staying invested in the long-term and by the power of compounding.