When you are looking for investments, a Unit Linked Investment Plan (ULIP) is one that you should add to your portfolio. It fulfills your two financial needs in a single plan, providing life insurance and an investment opportunity. Like any other life insurance, you must pay a premium. However, it is allocated differently than traditional life insurance. The tips of your ULIP are partly given towards life insurance and partially allocated towards life insurance. These dual benefits make it the perfect product for every investor’s portfolio.
Once you understand what ULIP is as a policy, you must decide how to invest in it. Insurance companies provide several funds you can choose from for your ULIP. The funds available can be broadly divided into three types based on your risk appetite. The three types are equity, debt, and balance. Here are four key strategies you can use while buying a ULIP:
Fund selection
Your fund selection depends upon your risk appetite and financial goals. If you take risks, you can invest in the equity markets through equity-based ULIPs. Whereas, if you are looking for investment opportunities that are low risk, you can choose debt funds. You can select balanced funds if you are looking for a financial instrument that balances both options. They comprise both equity funds and debt funds. They provide moderate returns and have reasonable risks involved. To maximize your ULIP benefits, choose the funds that meet your needs. Evaluate your risk appetite and your current portfolio to know the type of funds you need to add to your portfolio. You can use a ULIP calculator and choose the premium amount based on the sum assured you want when your policy matures.
Multiply returns with compounding.
ULIP is a policy that has a lock-in period of five years. It is designed for the long haul, and to reap its maximum benefits, you must stay invested until your plan matures. A part of your regular premiums is added to your current investment. With traditional investments added, your ULIP benefits increase because of compounding. Compounding is when you earn interest on your previous returns and the principal amount. Your returns are multiplied by compounding, allowing you to maximize your benefits.
Alignment with your long-term goal
The investment component of your plan must align with your long-term goals. Whether investing in your child’s education, buying your dream house, or simply investing for your retirement, whatever your goal may be, it is important to keep it in mind before investing. It is When the amount of your premium and your investment tenure; keep your goal in mind. Also, consider your other assets, as they will give you a fair idea of what you want from your ULIP. If your portfolio is already filled with risky investments, you can choose safe investment options in your ULIP or vice versa.
Take advantage of asset allocation.
One of the unique ULIP benefits is that you can switch your fund allocation anytime you want. Since they are market-based investments, their performance is directly based on market fluctuations. You can switch your budget from debt to equity anytime to maximize your returns. Asset allocation and switching between funds allow you to diversify your portfolio and seek maximum profit. Ensure that you research and compare different funds before allocating them.
ULIP offers life insurance and investment opportunities in a single plan. When you buy a ULIP, you get several tax benefits, as your premiums are subject to deductions under Section 80C. When you are choosing the fund, ensure that you consider the above strategies. These strategies will allow you to maximize your ULIP benefits as an investment. It will help you create a comprehensive portfolio with balanced risk and reward ratios.
