Finance Blog

6 Essential Things ULIP Investors Must Know

With the accessibility of low-cost ULIPs, it has become one of the most profitable investment choices with high tax efficiency. But there are always essential steps each investor can take before investing in anything. ULIP investors need to keep these things in mind to accomplish the required exponential growth.

  1. Choosing the right amount of insurance cover

Since ULIP plans provide life cover plus investment, the whole purpose will be to have a suitable insurance along with adjusted returns on investment for long-term goals like marriage, retirement, children’s education, etc. These insurance covers also take care of death or disabilities, hence, guaranteeing that in case the investor faces mishap, the sum assured or the funds value (whichever is higher) is paid out to the nominee. Along with safeguarding your aim, you can also safeguard your family; this is the beauty of ULIP. Thus, selecting the correct amount of life cover is of utmost importance.

  1. Opting for the proper mix of asset classes

ULIPs provide various funds (equity debt and hybrid) you can pick from. Selecting the right mixture of assets should depend on your investment goal, age and your risk appetite. If your investment objective is growth, you must go the aggressive way, i.e., more investment in equity funds. Otherwise, you can be conservative by selecting more debt funds, if your objective is to accumulate the wealth. It’s important that you make an informed decision while selecting the asset blend based on your investing style and requirement.

  1. Knowing the right time for a switch and its implications

Fund switch is the unique feature of ULIP plans that offers you with a chance to cultivate your wealth. There are few Switches which are free of cost and it is important to use this option wisely to get the maximum benefit. Your allocation may change over time depending on your age and market performance. Therefore, you can switch from one fund to another easily.

  1. Rebalancing your ULIP portfolio based on risk appetite

When it comes to long-term investments, rebalancing of the portfolio also helps to diversify the risk. Suppose you prefer to use the aggressive strategy as you are just 30 years when investing in a ULIP plan. You may have to switch your strategy based on how your life develops. You need to be instinctual and rebalance your investment portfolio accordingly as per your needs then. As you age you are subjected to changing risk appetite, so you can switch from an aggressive allocation of the 80-20 ratio of equity-debt funds to a moderate allocation of 50-50 equity and debt. Ensure you keep in mind the economic situation while changing the allocation.

  1. Understanding the charges before you invest

Earlier, ULIPs were considered as expensive investment instruments with high upfront charges with premium allocation and fund management charges. The IRDAI has since then brought in a significant amount of changes in the charges. Nevertheless, it’s important to understand the charge structure of the ULIP you are selecting to invest in as the value that accumulated often gets eaten by these charges. Other ULIP charges are mortality and administration cost charges.

  1. Staying invested for a long-term horizon

Volatility is an inevitable aspect of the investment market. The market fluctuates every day. To get the highest possible returns among such volatility, you need to stay in the market and go through the fluctuations. Staying invested for the long term is the major factor to decreasing the volatility effect and observing a striking growth pattern. A ULIP plan is made to meet the requirement of investors with long-term goals.

To make an informed decision, you should be aware of the investment product. ULIPs are optimal choices for investors with long-term investment goals. Make sure you consider all the important elements and thus, get the most of your ULIP plan. For easy analysis of your funds, you can try the ULIP calculator.

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