ULIPs offer great flexibility to strategise your investments with various fund options ranging from equity to debt to achieve optimum returns.
A unit linked investment plan (ULIP) is a great financial instrument that offers you dual benefit of insurance and investment. There is a wide range of fund options available in this product. You can diversify the risk and achieve maximum returns by following the best investing approach. Here are a few tips to plan and strategise your ULIP investments now.
Right Choice of Funds
It is important to remember that ULIPs are not only equity-oriented plans. Most insurance companies offer ULIPs with various fund options like growth fund, debt-oriented fund, balanced fund and cash fund. It invests your money into equity, debt and money market instruments in varying proportions as per your choice of fund.
You can choose the funds depending on your return expectation, risk appetite, investment goal and investing style. For instance, you can choose a balanced fund for moderate risk. It will have equity and debt in the proposition 60:40. If you are a young investor with high return expectations, chose the equity-oriented growth fund. In short, you need to make the right choice to be smart investor.
Use the Fund Switch Facility to Its Best
The switching facility is the convenient and tax-efficient option. This differentiates ULIP from other investment products. You can optimize the asset allocation for great value creation over the long run by making great use of the switching facility.
You can move your money from debt to equity and vice versa as per your expectation of market movements. If you think a slight downfall in equity will go further down, shift from equity to debt. You can shift from debt to equity whenever there is a market correction. And Then you can also switch within debt funds. You can choose to shift into short-term funds whenever interest rates are to rise and vice versa. You can also rebalance your portfolio to be in line with asset allocation. Use free switches to strike a desired balance between equity and debt for a good investment.
If you cannot keep a regular watch on the market, a ULIP offers you an automatic switching facility. In this, the fund manager will switch from equity to debt whenever there is stock market fall expected and vice versa.
The Right Mix of Equity and Debt
A mix of equity and debt must be as per your investment goal. Your return expectations and changing risk profile also contribute. For instance, you are investing in a ULIP at 28 for your retirement. You can start with an aggressive fund into equity as your goal is far away.
An equity-heavy portfolio can fetch you higher returns for a long-term horizon. This can happen by compensating extra volatility. Once you have family and kids, your financial obligations increase. You may have to shift from an aggressive fund to a balanced fund which invests portions of money into debt. Likewise, you can change the proportion of equity and debt mix as per your changing risk profile. The best way is to take a conservative approach when you are near your investment goal. Shifting towards debt funds are safer and stable.
Stay Invested for Long
New ULIPs are low-cost products with no surrender charges after the lock-in period of 5 years. But, you need to stay invested for at least 10 years to reap the benefits. As ULIPs come with front-loaded charges, they outperform and work well for the long run. Long-term investors gain ‘loyalty additions’ too. Investing in a ULIP as an investment goal with a long-term horizon is the ideal way.
As a ULIP is a long-term, market-linked financial product. It requires the right strategy. Time the market. Make effective use of the flexible features to optimise your returns. The best way is to strike a balance between equity and debt as per your financial goal, risk exposure and the time horizon.