A Unit Linked Insurance Plan or ULIP is one of the most popular investment options among retail investors. While ULIP is primarily a life insurance policy, many people invest in it mainly because it offers protection as well as returns on investment. In ULIPs, a part of the premium you pay is set aside to provide insurance protection, whereas, the remaining amount is invested in different assets like bonds and stocks based on your financial goals and risk appetite.
Investment gurus suggest that ULIP plans are an excellent investment choice for those seeking long-term wealth creation and insurance cover. Just like mutual funds, the ULIPs returns are market linked and it can greatly vary based on the funds’ performance and market condition. Since these plans have a five-year lock-in period, it is paramount that you stay invested for a longer period to get considerable returns and build a robust corpus for the future.
Just as it is important to stay invested for a long time, it is equally critical to monitor the funds’ performance. Here a few proven strategies that you can adopt to minimise the risk and safeguard your funds.
Choose the right fund
One of the most important things about getting valuable returns from your ULIP investment is to choose the right funds that perfects aligns with your long-term financial goals and risk-taking capacity. You can allocate the funds in equity funds for long-term capital appreciation. While these funds have high risk potential, they also offer higher returns in the long-run than debt funds.
Alternatively, if you do not want to take risk, you can invest in conservative funds that mainly invests in bonds or you can invest in hybrid finds. While these funds may not give you high returns, it will ensure capital preservation. Whatever funds you choose, it is advisable that you consult your advisor to understand the risks the benefits.
Switch funds
ULIP investments allows you to switch your investments from one fund to another as per your changing financial goals and risk appetite and market condition. This means you can switch your investments in equity funds to debt funds and vice-versa. But, before you make the decision to switch the funds, it is advisable to review the market outlook, the funds’ performance, etc. If done right, switching funds at the right time can maximize the returns. Generally, most insurers in India allow up to four free switches in a year.
Keep yourself updated with the market condition
As an investor, it is critical that you keep yourself up to date with the latest news and information about the market condition, and movement. Based on your understanding of the market, you must adjust your investment strategy and fund allocation. You must actively look for market opportunities to maximise the returns.
Stay invested for long
ULIPs come with a five-year lock-in period. Many investors tend to surrender the ULIP for quick gains. But, experts suggest that it is better to stay invested through these five years to get maximum returns. If you follow the market closely and make necessary adjustments, you may get an opportunity to buy additional units at lower NAV when the market falls. This will eventually result in increasing the fund value when the market recovers and you can get higher returns.
Final Word
ULIP investment can help realise the long-term goals. But, to be successful you must monitor the funds’ performance and necessary adjustments to get maximum returns in the long-run.
