Unit-linked insurance plans are among the most suitable choices for individuals looking to build wealth and protect their loved ones. With ULIP policies, you can achieve your financial goals in the long run. However, before investing in ULIP investments, you must have a clear idea about it.
How Do ULIPs Work?
In ULIPs, your premium amount is split into two parts. The first part is kept for insurance coverage, and the second is kept for investment. Your insurer will pool the funds for investment, and it will be invested in the funds you have chosen.
The total investment corpus is segregated into units with a specific face value. Once the ULIP investment is made, you will be allotted the units based on your selected investment amount. Therefore, you must plan your purchase carefully. Most insurers like Tata AIA offer ULIP calculators to help customers purchase the Tata AIA ULIP plan.
With ULIPs, you get to build wealth and benefit from the power of compounding simultaneously. First, however, you must learn how to manage ULIP funds efficiently to maximise your ULIP returns from the plan.
Ways You Can Manage Your ULIPs Efficiently
Here are some ULIP tips you can follow to manage your ULIP plans efficiently:
- Calculate your risk profile: A high-risk investment can convert into high profits. However, this is not the case all the time. Your investment can go up and down based on the volatility in the market. The volatility can severely impact your investment. Therefore, you must analyse your risk profile before going ahead with the investment.
If your income rises in the near future, you can opt to increase your investment in equity-based funds. However, if your risk profile is low, you can opt for balanced funds. These funds can offer you the benefit of equity and debt under a single investment.
- Use switching funds to handle volatile markets: Market volatility is common in the stock market. You will face the impact of market volatility based on the asset class of your investment. For example, if you’ve primarily invested in debt funds, the impact will be low. However, if you’ve primarily invested in equity, your investment will be severely impacted.
In such situations, you can protect your ULIP investment by switching to a balanced portfolio that holds debt and equity. ULIP policies benefit from switching between funds during the policy’s tenure. You can use this ULIP feature to your benefit during market volatility. You can also switch funds when your plan is reaching maturity. This way, the profits you have earned through the plan will not be impacted heavily. If you don’t have the expertise to judge a market’s condition, you can opt for an asset allocation fund. After analysing the market environment, your fund manager will switch between equity and debt with this fund.
- Premium re-allocation: You can redirect your future premiums to different fund options you have selected during the inception of your policy while holding the existing investments intact. If you think the market isn’t performing well, you can reallocate your future premium payments to a more profitable or low-risk fund. Once you have earned substantial profits, you can again redirect the premiums to a suitable option like a balanced fund and earn stable profits through your investment.
While purchasing ULIPS has become quite easy these days, you must also learn about managing the ULIP investments. Efficiently managing ULIPs will help you earn suitable profits in the long run. Along with this, it will help you ensure your investment is not impacted heavily because of market volatility.