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December 1, 2023

Which ULIP is the best for your portfolio?

Unit Linked Investment Plan (ULIP) is a dual financial instrument that has both insurance and investment components to it. When you buy a ULIP, part of the premiums you pay are used towards providing life cover and the other half are invested in the funds of your choice. When your ULIP policy matures, you will receive a sum assured. If in case of an unfortunate demise of the policyholder during the tenure of the ULIP, the nominee will receive the sum coverage. ULIP benefits are dual as you have an investment that you get after maturity with returns, and you do not have to worry about your family’s well-being in your absence as you get a life cover too.

There are several types of ULIPs in the market that serve different purposes. It can confuse you in choosing the one that would benefit your portfolio the most.

There are two key factors you need to consider while choosing a ULIP, they are:

  1. Your risk appetite

The insurance component of the ULIP is simple to understand. However, for the investment component, you first need to evaluate your own ability to handle risk. Your risk appetite depends upon your age, dependents, existing investments, and financial goals. A young person in their 20s could have risk investments in their portfolio, say compared to a person in their mid-30s with a family.

Based on the risk that you can take, there are three main types of ULIPs you can choose from: equity, debt, and balanced funds. With equity funds, your money is invested in equity markets. These funds have high risk and usually offer high returns, too. Whereas, if you are looking for safe investments, there are debt funds available where your money is usually invested in low-risk instruments like corporate and government bonds. Since they have low risk, their returns are also low compared to equity funds. If are confused between the two and want a mid-way investment, balanced funds are for you. In them, half of your money is invested in equity funds and the other half is invested in debt funds. So, you incur moderate risks and get moderate returns when compared to debt and equity.

You can use a ULIP return calculator to get an estimate of your returns on the ULIP policy you are planning to buy. One of the biggest advantages that most ULIP funds offer is the ability to switch between funds anytime you want. It means if you have initially invested in equity and later you are unwilling to take high risks, you can switch your allocation to debt funds for a much safer approach.

  1. Your investment goals and objectives

When you are planning your investments, ensure that your investments align with your long-term goals. Whenever a person has a goal-oriented approach towards investments, they are likely to pay attention, do the required research, and make an informed decision. The goal here can be anything, be it saving for a dream vacation, buying a new house after marriage or after having children, or simply building a retirement corpus.

When you are buying a ULIP, keep these goals in mind and invest accordingly. Also, consider your existing financial portfolio and understand which decision suits you better. For example, if most of your existing portfolio is in stocks and risky investments, you may prefer investing in safer investments in your ULIP, like debt funds. Whereas, if you always have wanted to invest in equity and were hesitant, you can take the risk by opting for equity funds in your ULIP. ULIP benefits are enormous if one invests wisely as it offers financial security with their life cover and investment for wealth creation too.

Taking the above factors into consideration will provide clarity on which ULIP suits your portfolio the best. Use a ULIP return calculator online and compare the different ULIPs you are considering. Also, compare the benefits, features, terms, and conditions of the ULIPs you have shortlisted before choosing one. Financial instruments like ULIPs are worth considering adding to your basket of investment as they have dual benefits of insurance and investment. Also, the flexibility that ULIP offers is rare to find in most conventional investments.

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