Unit linked insurance plan, or ULIP, is investment-cum-insurance plan. In ULIP, a part of the investment is put towards providing insurance, and the other part is invested in the market based on the policyholder’s risk-holding capacity.
For its diversified fund allocation, it is considered a great investment tool. Apart from the diversification, ULIP funds offer a wide range of investment options. While these options can maximise your chances of making money in the long run, it also makes it challenging to enter the ULIP market for beginner-level investors.
There is another prevalent confusion among new investors, they find it difficult to evaluate their risk appetite. The good news is that there are ULIP calculators available online that can help you evaluate your investment risk.
So, if you are a new investor and need help managing your ULIP investment more effectively to make an informed decision, read this article.
How Do I Manage My ULIP Funds?
Plan Your Goals
Before planning your ULIP investment, you must know the nature of the ULIP product. And accordingly, start planning your ULIP investment. ULIP allows investors to invest in various funds, such as equity, debt, and balanced funds, so your goals should decide your exposure to different sectors.
For example, let’s say your goals are long-term, and you have a high-risk appetite. In this case, increasing investment in equity funds with the highest risk is recommended. On the other hand, if your goal is short-term capital with a low-risk appetite, you may want to invest more in debt funds.
ULIP plans allow you to modify your portfolio based on your goals and market condition. If the market condition in one product is too risky, you can make changes to your fund allocation.
Properly planning your life goals can help you make the best decisions about ULIP investment. And, if you are looking for a ULIP policy, go with a reputed one like Tata AIA ULIP plans.
Decide Your Risk Appetite
When you need to manage your ULIP investment, it’s essential to understand that higher risks sometimes lead to higher returns. Although the nature of equity funds reflects their potential to generate a high return as compared to other funds, they also pose a higher market risk.
As new investors, it is crucial to understand and evaluate your willingness and risk appetite and financial goals before settling on your ULIP investment strategy. Carefully evaluate your risk averseness and adjust your ULIP investment portfolio accordingly.
Diversification of a portfolio is the best strategy to spread your risks and minimise your losses, making your investment a safer investment. With ULIP, you can be flexible and invest in a different range of assets, including equity, debt, and balanced funds.
Here your risk appetite will be the key determining factor. First, assess your risk-to-return ratio of each investment and make the adjustment based on it. Then, with a well-diversified portfolio, you ensure that ULIP investment is aligned with your financial objectives.
Consider Additional Charges
Most of the time, the insurance company charges or deducts a certain amount on your premium before allocating it to funds. The charges differ based on the nature of the investment, such as mortality charges, premium allocation charges, policy administration charges, and fund management charges. In addition, some companies charge mortality charges when the policy matures.
While these charges may look like a fraction of your investment amount, they can add up in the future when you redeem your funds. Also, it is important to understand ULIP tax benefits before planning your investment.
Monitor your market
To ensure you get the planned value at maturity, it is essential to keep track of market updates and the performances of your invested funds. This helps to switch your allocations if you can take more risks, or become more averse.
ULIP can be a compelling investment option for new investors with the opportunity to create wealth in the long run. You can also take advantage of ULIP tax benefits. With the tips mentioned above concerning your planning, evaluation and fund diversification, you can manage your ULIP investment more effectively and reap the benefits of ULIP policy.