The equity market is volatile. Subsequently, any investment made into the money market is subject to a fair bit of risk. As a result, it is natural for investors to look for instruments, which are less prone to market upheavals, to invest their hard-earned money.
ULIPs are one such instrument that offers you flexibility in choosing investment options as per your risk appetite. Subsequently, you can invest in debt funds, which are relatively safe and involve lesser risk compared to equities. On the other hand, equities are more suitable to avail significant returns over an extended period of investment.
Further, equities are better placed than debt funds to beat inflation and maximise the returns on your investment. Therefore, if you wish some stability on your investments, in spite of being risk-averse, here’s how you may use unit-linked insurance plans to your advantage.
Choose a ULIP That Invests in Balanced Funds
Most reputable insurers including Max Life Insurance offer unit-linked plans that allow to invest in a variety of options and manage your returns while avoiding market fluctuations at large. Being a market-linked product, therefore, these plans allow flexibility to all kinds of investors. Those with a high-risk appetite may put their money into equity, whereas investors who are risk-averse, can go for the relatively safer balanced or debt funds.
Overall, you must select a plan that invests your money in a balanced mix of both equity and debt funds. This, in turn, would help you avail healthy returns while exposing your investments to lower risk, as much as possible.
Switch Between Funds to Ride Out Volatile Market Phases
Fund switching is an essential aspect of leading unit-linked insurance plans available today. The switching functionality allows investors to protect their investments from market volatility while maximising returns on the investment. Switching of funds is necessarily an act of balancing the equity-debt investment portfolio, and therefore, should be done only by your financial goals and market fluctuations.
For example, if you observe that the market is going to experience a dip shortly, you may proceed to switch a portion of your investment to debt or balanced funds. This way, you could secure the corpus earned on your investment from the market dip, and also ensure that your investment continues to grow. In general, unit-linked insurance plans offer you a specific number of free switches in a year.
Avail the Partial withdrawal Facility
As per recent directives from the IRDAI, unit-linked plans now have a lock-in period of 5 years. Subsequently, investors tend to remain invested for a more extended period, thus allowing their money to grow. Also, investing in ULIPs helps inculcate a disciplined investment habit.
That said, unit-linked plans are not rigid regarding liquidity. Instead, investors have the opportunity to make partial withdrawals from the earned corpus, once the mandatory lock-in period ends. Thus, you can utilise your investment returns to take care of your needs, as and when required.
Monitor the Performance of Your Funds
As a smart investor, you must keep a regular check on the fund performance, in which you have invested your money. You can do this quite easily, by monitoring the Net Asset Value (NAV) of the funds.
The NAV is updated on a daily basis, and by tracking its value for the past few years, you can ascertain the type of returns you can expect from the fund over some time. Thus, a higher NAV means excellent performance, which in turn, implies that you could remain invested in that fund.
ULIP Investments Are for Everyone
All of us have goals, whether short-term or long-term. While short-term goals can be anything, from purchasing the new iPhone to getting that new 56-inch plasma TV, long-term goals are usually more planning-intensive such as higher education for your children or buying a house. For short-term goals such as buying a phone, therefore, you can perhaps save for a couple of months. On the other hand, you would need to plan for a longer time horizon to create a significant corpus. This is where unit-linked insurance plans come handy.
While many mull over mutual fund vs ULIP, the fact remains that unit-linked plans offer better risk-aversion along with the dual benefit of being an investment cum insurance product. This puts ULIPs one place ahead of mutual funds when it comes to earning returns on long-term investments.
Raj Kumar is a qualified business/finance writer expert in investment, debt, credit cards, Passive income, financial updates. He advises in his blog finance clap.