There are several financial products available these days that provide financial security while also allowing you to grow. Narrowing down your choices from an array of options can be an excruciating task. A plan that offers the perfect blend of life insurance and investment is known as Unit Linked Insurance Plan (ULIP).
What is ULIP?
ULIP is a life insurance product that differs from any traditional or pure life policies. It is a single integrated plan, where along with life insurance, you also get an investment option. It ensures that you get sufficient cover from your life insurance along with returns on the side from your investment. When your ULIP matures, you get a fund value that comprises the amount invested along with the returns earned on it.
How should you evaluate your ULIP equity fund risk?
ULIP is designed uniquely where it meets the needs of several types of policyholders, from the risk-prone to the risk-averse ones. You can choose the fund you want to invest in and track its performance over the years. If you, as a policyholder, want to invest in an equity-based ULIP, here are some strategies you can go about to evaluate your performance:
- Offers high returns
Equity-based ULIPs are high risk and often offer high returns. Compared to other policies with savings or investment components, the equity ones easily offer huge returns. They also beat traditional investments like Fixed Deposits (FDs) easily. This is because equity funds have their money invested directly invested in equity markets. - Professionally managed
Once you understand what a ULIP is, you will come across several investment options. While narrowing down, check out the past performance of the fund that you are planning to invest in. A fund manager’s job is to invest your funds in instruments that offer desired results. This knowledge that a professional is taking care of your funds can offer a sense of relief. - Easy to track
When individuals directly invest in the stock market, they have to do everything by themselves. With ULIPs, the fund manager does all the work for you while you simply have to track your ULIP fund performance. They ensure that your money is invested in stocks which are likely to outperform. However, it is important to remember that, with equity funds, there are no fixed returns. They are directly based on how the stock market is performing.
- Offers the benefit of compounding
Every investor has a goal in mind for which they have been saving and investing their hard-earned money. It can be for buying a house, for their child’s education, or simply building up a retirement corpus. Investing in equity-based ULIPs is risky, but it also offers high returns over the years. If you are invested for the long haul, you are likely to receive great returns as you get the benefits of compounding. Compounding is when an investment over the years provides returns not only on the principal amount but also on the returns of the previous years. To maximize your gains from compounding, you need to be patient and invest with a disciplined approach. - Flexible
When you invest in equity or equity-related financial instruments, you cannot change your allocation. You either have to hold on to your funds or exit it at a loss. With ULIP-based equity funds, things work differently. If you are unhappy with the ULIP fund performance, you can switch the fund allocation anytime you want. This allows you to change your allocation from debt to equity. If you had invested in debt funds and want to try equity-based ones, you can invest in them as well. Several investors invest in equity markets in the initial years when their risk appetite is high. Then later, when their ULIP is about to mature, they switch their allocation to debt funds. This ensures that they get the best of both worlds. The flexibility of switching funds is a rare feature of ULIP that has benefited several investors over the years.
The above pointers will help you evaluate your equity-based ULIPs easily. Even though you do not have to track your funds every day, ensure that you know how they are performing.
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