Choosing a good ULIP is merely 5-10% as the main part is in the way you manage it. You must know to take care of its advantages offered by the ULIP. However, if you are a person to buy a unit linked insurance policy and to keep it dormant for 10 years and so, ULIPS are not for you. In that case, Mutual funds are recommended. Thus it clearly reveals that you must know management of ULIP well, if you wish to earn good returns, but if you lose money on ULIP, it means you are mismanaging it.
Managing a ULIP is very simple over a long term, but not easy. You may have to do few things. Switch facility on anticipating an opportunity. On seeing markets are high and the euphoria in the market is much, reduce your equity allocation and move it to debts. Likewise, the dullness in the market, and when everyone is afraid in the market it is time to move your money in to Equity.
Unit Linked Insurance Plan provides dual benefits of investment and insurance. However, due to the market-linked structure, it is referred to as risky investment. The truth is that ULIP is not actually a risky option, if you understand clearly the market dynamics. You must know where and when to invest. Once you tread smartly and balance the funds, you are without any risk and will enjoy good returns. There are various options when judiciously exercised and this can protect ULIP from the volatility of the market.
ULIP – Clear Structure
ULIP is a clear structured policy; this means all the commissions and charges are clearly specified in the benefit illustration. Insurers may send NAV updates daily with the yearly and quarterly reports on the fund’s performance. It also means investors can keep a vigilant watch on the investment and accordingly make essential changes. ULIP provides a series of fund options.
Insurers send daily NAV updates along with quarterly and yearly reports on the performance of funds. It means you can keep a watch on your investment and make changes accordingly.
ULIP offers a wide range of fund options:
- Equity Funds: Here the investment is done in the company stocks to get the capital appreciation.
- Balanced Funds: This is a combination of equity investments in association with fixed interest instruments.
- Secured Funds : The investment is done in money market and bank funds.
- Debt Funds: The investment is done in government securities, corporate bonds and other fixed income instruments.
Invest in any fund options is completely depending on your risk appetite. You may check the past fund performance before predicting on its future behavior.
ULIP- Switching out of a Volatile Market
The most convenient way of fund switching is to protect your investments from the fluctuations of the market and to maximize returns by striking a balance between debt and equity. For instance, if you anticipate a stock market dip t, you can switch your money with 100% equity from a fund to a balanced portfolio that has equity 60% and debt 40% debt. Likewise, when you approach a milestone in your life and are in dire need of finances for child’s education or marriage, you can shift an investment portion to liquid/debt funds. Thus ascertain large corpus availability at the needy hour.
However, if you are not market-savvy or lack time to keep a regular watch on the market, you can go for the asset allocation fund option. So, the fund manager will easily switch between debt and after considering the overall market scenario. Thus, ULIPs allow free switching options for a certain number in a year.
Redirection of Premium
Redirecting future premiums chosen during the policy inception to different funds can be done by keeping intact the existing units. In case you thing the market is not performing rightly, redirect your future premium to a fund that is less risky. Once you are sure your funds have the required built up, you may redirect the premium to balanced funds and thus enjoy returns on your investment.
Precisely, ULIP is a product of long term involving disciple and commitment. People lacking understanding of the market or time may take the guidance and help of the fund managers of insurance.
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