Searching for an ideal investment instrument from the plethora of options available in the market can be a difficult task, especially if you are a first-time investor. Unit-Linked Insurance Plan (ULIP) is one of the most wealth generation financial products in the market today. It can help you to meet your long-term monetary goals. Before discussing theULIP benefitsandfeatures, let us understand what it means and why it is so popular.
ULIP is a type of insurance plan that provides life cover and enables you to grow your wealth with its investment component. The premium you pay towards the ULIP gets divided into two portions. One part of the premium is used to insure your life. The insurance company invests the remaining amount in the financial market to earn significant returns that can help you to build a corpus to accomplish your life’s objectives.
Like any other investment, it is essential to manage your ULIP policy to make the most out of it and capitalize on returns. Here are some ways how you can handle your ULIP.
- Ascertain your long–term economic aspirations
It is practically impossible to manage your ULIP if you are unsure about your ambitions. You need to take your life’s goals into account before making any investments. For instance, if you wish to buy a new house or car, and sponsor your children’s education and their wedding, align your investments in such a way that you can achieve these milestones.
- Consider your risk-bearing capacity
ULIP investment can be risky, particularly if you are planning to invest in equity funds. Here, the insurer invests a part of your premium in the capital market. You need to have a high risk-taking capability to invest in such funds. However, the returns on investments are also high. If you have are a risk-averse investor, invest in a debt fund. Here, the risk and returns are both low when compared to equity funds. If you have a moderate risk appetite, you can consider investing your money in a balanced fund, which is a combination of equity and debt funds.
- Be wise in assetallocation
One of the best ULIP benefits is that it allows you to invest in different types of funds. So, you can spread your risks by diversifying your portfolio. Based on your risk tenacity, you can opt to invest in various kinds of funds, like equity funds, debt funds, liquid funds, cash funds, and balanced funds. With ULIPs, it is possible to switch from one fund to another.Thus, it becomes important to do your asset allocation in such a way that it can keep the right balance between your risk to reward ratio.
- Understand the costs associated with ULIP
ULIPs have many charges, like premium allocation charges, mortality charges, fund management charges, and administration charges, among others. Here, the insurer deducts these costs from the premium that you pay towards the ULIP and invests the balance sum in the funds of your choice. Therefore, it becomes necessary to learn about the different charges so that you know how your money is utilized.
If you wish to earn substantial returns on your investment, invest in a promising equity fund for a long tenure of 10-15 years. Here, the performance of your ULIP is based on the functioning of the equity market. Therefore, it becomes essential to monitor your assets by keeping a close eye on the market movements. Moreover, doing this helps you to make a sound financial decision regarding switching funds from one option to another to maximize the returns on investment.
By following these ideas, you can manage your ULIP smartly and gain more benefits from yourULIP investment.