The beginning of your investment journey is bound to be filled with curiosity, questions, and, at times, even apprehension. However, if you select an investment avenue after conducting thorough research, it becomes easier to align your financial goals with said investment. It is important to note here that a ULIP (Unit-linked insurance plan) is one of the easiest and most convenient investment options, particularly for new investors.
What is a ULIP?
A ULIP scheme or Unit-linked insurance plan is a product that enables investors to receive the dual benefits of insurance and investment in a single plan. In a ULIP, a percentage of the premium is allocated towards life insurance cover, and the balance is invested in a fund of your choice. Therefore, by purchasing a ULIP, you can safeguard your family against future uncertainties and invest your savings in a systematic manner.
It is important to note that a ULIP policy allows you to select the funds in which you want your investment to be allocated. If you are willing to bear a high degree of risk, you can allocate your ULIP investment to an equity-based fund. On the other hand, if you can take only a minimal degree of risk, you can invest in debt-based funds. Furthermore, you can also invest in balanced funds, which are a combination of equity-based and debt-based funds in a predetermined ratio.
Most small investors lack the time and expertise to monitor and book profits from the equity market. A ULIP is a good option for such investors to participate and reap the returns without any hassle as the fund managers take appropriate decisions.
How Can You Manage Your ULIPs Better?
There are several simple ways through which you can manage your ULIP plan efficiently, some of which have been discussed below.
- Have a long-term investment mindset
You should be clear that ULIPs are meant to create wealth over the long term. Therefore, choose your investment in a ULIP scheme with that goal in mind. If you panic at short-term downswings in the stock market, you will not be able to gain substantial returns adjusting for inflation. Invest only that much in a ULIP that you can regularly contribute and hold for a significant period.
- Have clarity on your financial goals
If you want to gain the maximum possible benefit from your ULIP scheme, you must have clarity about your financial goals. Then accordingly, you can move from equity-based funds to debt-based funds or balanced funds and vice versa according to your risk appetite or financial goals.
- Be certain about your risk appetite
Balancing risk and high returns is quite difficult, and only investors who are certain about their risk appetites at a point in time can optimise their investment in any market-linked scheme. Therefore, you must be clear about your risk appetite and accordingly choose funds for your ULIP plan.
- Actively track the market performance of your ULIP scheme funds
Keeping track of the net asset value of the funds you have allocated in your ULIP scheme investment is essential in managing your investment efficiently. If you realize that the funds are not performing as expected, you can shift your investment to another fund, thereby minimising any potential loss. As mentioned above, avoid panic behaviour.
- Have knowledge of your ULIP fund’s management charges
You must know the applicable ULIP fund management charges that include policy administration charges and premium allocation charges. The net amount of your investment in different funds is arrived at after deducting these charges from your premium amount.
A ULIP policy is an excellent investment option, one that serves as an insurance policy as well as an investment plan. Furthermore, it also offers tax benefits to the subscriber. If you enhance your knowledge of the essential features of a ULIP plan, you can achieve the efficient management of your ULIP investment.
There are several insurance companies in India that offer different kinds of ULIP plans. You can research the features of the aforementioned plans and purchase them online. For instance, Tata AIA ULIP has several attractive benefits to the subscribers, such as life insurance cover, safe investment, and tax benefits. The taxation of ULIP schemes has changed with effect from February 2021. So, make sure you note the taxation limits to avail maximum benefits from your ULIP investment.