INSURANCE PLANS

ULIP

What is ULIP?

Insurance has long been viewed as a guarantee and not particularly as an investment. But it can be. Not only can you cover your life but you can also put your money to work and make it grow for you. How? Let’s understand this aspect through the wonder product – ULIP.

Decoding ULIPs

Unit Linked Insurance Plan, commonly known as ULIP, is a hybrid product that combines life insurance and market-linked investment. Thus, a portion of the premium goes towards insurance, and the other portion is invested in capital and money markets, just like a mutual fund.

How do ULIPs work?

As a policyholder, you pay a certain premium on a monthly or annual basis based on the type of ULIP you choose. The entire premium paid is not allocated to buying the units. A small amount is allocated for administrative and mortality charges of the insurance policy. The balance premium can be invested in an equity fund, balanced fund, debt fund or secured fund, depending on your risk appetite.

Death and maturity benefits

If a policyholder happens to survive the policy term and has paid the premium regularly, he/she is eligible for a maturity benefit. Thus, by submitting a discharge form and basic documents, you, as the policyholder, stand eligible to receive the present-day value of the fund along with bonus and loyalty benefits, if any.

In the event you do not survive the term, your nominee receives the sum assured, or sum assured plus the fund value or higher of the two depending on the plan you’ve chosen.

Other benefits

  • Tax benefits: Premium paid towards ULIP is eligible for tax deduction up to Rs. 1.5 lakh under section 80C of Income Tax Act.
  • Partial withdrawal: Once the lock-in period is over, you can redeem some of your units at that day’s value, tax-free.
  • Flexibility: You can switch from equity to debt or some combination of the two during the policy period. Thus, you have the opportunity to modify your plan based on how your risk tolerance or goals change.

 

 

7 Reasons ULIPs should be part of your investment portfolio

 

 

Stocks, bonds, fixed income avenues: these are some of the popular investment choices among investors. But ULIPs offer an unparalleled investment option of a calculated blend of insurance and a financial plan.

Let's look at seven exciting reasons why, as a smart investor, you should add ULIPs to your portfolio, for multiple benefits and to enhance your wealth potential.

  1. Dual benefit of insurance and investment

    ULIPs offer you not just not one but two important services. When you invest in a ULIP, you receive dual benefits of investment and insurance. With ULIPs you get death or maturity benefits in addition to the advantage of investing a part of your premium in market-linked funds. This is how it works: a portion of your investment is used to provide the insurance cover. The remaining amount is invested in different investment options.

  2. Freedom to invest based on your risk appetite

    Imagine you’ve taken your family to an amusement park for the weekend. There are different rides in the park: the roller coaster, the Ferris wheel and the exciting water rides. Your eldest daughter hops on the roller coaster without any fear (she loves the thrill), but your younger son prefers water rides because they are less risky, while you are content with the Ferris wheel.
    In life, we all have a different appetite for risk. And the same can be said for investments. That’s why ULIPs offer investors the freedom to choose their investment based on their risk-taking capacity.
    For instance, if you are a risk taker, investing in equity funds is a good option for you. On the other hand, debt funds may be more suitable if you are a low-risk investor. You also have the option to invest in a mix of debt and equity if you are a moderate risk-taker.

  3. Excellent for long term investment goals

    Before you invest in ULIPs, it is a good idea to create a list of the long term financial goals you wish to achieve through your investments. This list can include goals such as:

    1. Buying a house in the next ten years
    2. Creating a retirement fund
    3. Financing your child’s marriage in the next 12 years
    4. Creating a start-up in the future

    As an investment avenue, ULIPs are ideal for long term goals. This is because of the equity component of the plan. And since the returns are subject to market risks, it is best to invest for the long term instead of just riding the equity rallies in the short term.

  4. Tax benefits

    Who doesn’t like extra benefits? At your preferred ice-cream store, you order a scoop of your favourite ice-cream flavour, but the server adds in an additional scoop as a promotional offer. Totally free of cost! Now isn’t that a welcoming, pleasant surprise!
    With ULIPs you stand to win a whole range of benefits. In addition to long term returns and security, you can avail tax benefits. Under Section 80C of the Income Tax Act, you can avail tax rebates of up to Rs 1.5 lakh per year on all premiums paid towards life insurance. In addition, all pay-outs you receive from investing in ULIPs are exempt from tax under Section 10D of the IT Act. By consistently investing in ULIPs, you can save a substantial amount of money over the years.

  5. Switch funds as you wish

    When nothing catches your fancy on the telly, you immediately switch the channel to find an interesting programme. Now, wouldn’t it be great if you could switch your money from one fund to another whenever you want?
    With ULIPs, it is possible. The fund switching option allows you to manage your returns by moving your investments from one fund type to another. For example, if you have invested heavily in debt funds and you foresee a bull run in the stock market, you can switch to equity funds and maximise your returns. On the other hand, if you wish to be cautious or planning a prudent retirement plan, you can shift to debt options and protect your investments to stay safe from a market downturn.
    No matter the smart decisions you take on your ULIP plan, it has the promise of making your money work for you.

  6. Transparency

    When it comes to your money, you will always sleep better if you know how it is being invested. In other words, you as a savvy investor value transparency over all else. That’s why ULIPs are your best bet. As an investor in ULIPs, you are constantly provided with regular updates on where your money is being invested to track your portfolio performance at all times. With systematic information on the different charges applicable on your investments, you are kept well informed at all times.

  7. Low cost affair

    Until a few years ago, ULIPs were considered to be quite expensive. Various charges such as premium allocation charges, administration charges and surrender charges had given it an unfavourable rap as a costly investment option. However, ULIPs have come a long way since then.
    Modern day ULIPs such as the ones offered by Aegon Life are no longer heavy on the wallet, now with several charges being reduced. A high-value, long-term ULIP purchased online has considerably lower charges as compared to buying ULIPs offline that makes it an attractive investment option.

 

 

Key features of ULIPs vs Mutual Funds

 

 

Are you confused between investing in ULIPs and mutual funds? Which of the two offers better returns? What about security? If you are inundated with numerous doubts, allow us to ease your quandary.
ULIP is primarily an insurance product with an added benefit of the market-linked investment. This investment aspect is often compared with other investment products, especially mutual funds. Let us have a look at some key features that also differentiate ULIPs and mutual funds to help you decide what’s right for you.

Allocation and Expenses

When you invest in mutual funds, the entire amount is allocated to buying the respective units. The costs involved are fund management and administrative fees, which is generally capped by Securities and Exchange Board of India (SEBI).

On the other hand, on buying ULIP, a certain portion of the premium goes towards administrative and mortality charges to maintain the insurance cover. Insurers determine the mortality charges from a pre-defined mortality table, which is based on the risk of death involved. The remainder is then invested in securities, which again attracts certain fees. Although Insurance Regulatory and Development Authority of India (IRDAI) gives some guidelines, the final decision lies with the insurers.

Thus; if you invest Rs. 10,000 in a mutual fund, the entire amount will be used to buy the units, whereas, in a premium of the same amount, Rs. 2,000 would go towards the insurance cost and Rs. 8,000 would be invested in the market.

Lock-in Period

ULIPs have a lock-in period of five years. Thus, your investment remains intact for the first five years. Being a long-term investment, this plays a crucial role in letting the funds stay untouched and gain from compounding.

Liquidity is relatively higher in mutual funds as you can redeem the units at your will. However, most mutual funds charge an exit fee for the first year of investment. So, if you want to avoid any charges, it is best to stay invested for at least a year. Also, tax-saving mutual funds, i.e., Equity Linked Savings Scheme (ELSS) have a lock-in period of three years.

Flexibility

Every mutual fund has a pre-determined portfolio. On investing in a certain mutual fund, you stay invested until you redeem the units and exit the fund. There is no other option to switch between funds if your goals change or there is a change in the fund’s performance.

ULIPs give you that option. Most ULIP products offer you a range of funds to choose from. As you proceed further in the term, you have the freedom to switch from one fund to another. For instance, Aegon Life’s iMaximize and iInvest plans let you switch between six funds based on your objectives.

For instance, you invest Rs. 1 lakh in XYZ mutual fund. Later, you realise that ABC mutual fund is more appropriate to meet your goals. You will either have to redeem your investment in XYZ and then invest it in ABC or retain the former investment and invest an additional amount in ABC. Alternatively, if you had invested in ULIP, and chosen XYZ fund, and later realise ABC is better, you can conveniently switch from XYZ fund to ABC fund.

Tax Benefits

This year’s Union Budget reintroduced the long-term capital gains tax on equity investments including equity-oriented mutual funds. Thus, the returns earned on your mutual fund investments would be subjected to 10.4% income tax once redeemed after one year. ELSS is a tax-saving instrument and allows tax deduction up to Rs. 1.5 lakh under section 80C of Income Tax Act.

Suppose you invest Rs. 5 lakh in a mutual fund today and after 2 years, the value will be Rs. 5.8 lakh. If you withdraw the corpus at that time, LTCG tax of 10.4% will be applicable to the capital gains of Rs. 80,000. Thus, the amount you will receive after tax is Rs. 5.71 lakh.

ULIPs attract tax benefits not just on premium but withdrawals as well. The premium paid for ULIPs is eligible for tax deduction up to Rs. 1.5 lakh under section 80C. Additionally, pay-outs and withdrawals from ULIP are exempt from income tax under section 10 (10D). This includes all instances, i.e., on partial withdrawal, on the maturity of the policy as well as in case of policyholder’s death.

Exposure to Risk

Being an insurance product, ULIPs are relatively less risky. Although the premium is partly invested in equity/debt/hybrid funds, the investment is made with utmost care due to the protection aspect. Also, you are not completely at the loss even if the fund doesn’t perform, since the insurer pays you the higher of the sum assured or value of the fund.

Mutual funds operate between low to high-risk levels depending on investment in debt, balanced or equity funds, in the same order. Thus, if you are invested in an equity fund, and the market falls, your earnings can go in negative on that day.

Returns on Investment

Even with tax-benefits and various other advantages, the returns you are likely to earn from ULIP will be lower compared to mutual funds. Why? Simply because the insurance product cannot afford too much risk. Considering the basic mantra of investing – high risk, high returns – equity mutual funds can go all out and take the risk and give better returns. You must be able to a tradeoff between your own risk tolerance and expected returns to choose between the two.

Topping Up

With ULIP, there is a possibility to enhance your coverage and also the investment fund. Say, you got a bonus and looking to invest. You can use a part of this windfall gain as a top-up in addition to your regular premium. This will not only increase your sum assured but also invest it in the market.
Investing in mutual funds is an either-or situation. You can either choose to invest through SIP or a one-time investment.

Point to remember

As they say, insurance is not an investment because the objective of both is different. ULIPs’ primary aim is to provide protection/cover, and mutual funds are for wealth maximisation. As long as you can keep your goals distinct, you need not choose between the two. But, remember, once you have invested in any or both, hold on for as long as you can to reap maximum benefits.

To know more about Aegon Life's ULIP,Click here

 

 

Why Aegon Life for ULIPs?

 

 

When it comes to choosing the right ULIP for your family, you would likely do a lot of research. After all, you need to be sure whose hands you’re leaving their future in. Here’s a look at the rich history and credibility that Aegon brings.

Why Aegon Life?

Aegon was established more than 170 years ago and operates in over 20 countries today. In India, Aegon has partnered with the reputed Bennett, Coleman & Company Limited, i.e., The Times Group. As a company, honouring commitments and engaging meaningfully with the customers is its core value. With a strong belief in agility and a deep realisation of the urgency of matters, Aegon Life believes paying heed to its customer needs is the priority. To be able to reach out to a larger audience, a wide range of insurance plans have been crafted to suit the needs and requirements of everyone.

Recognition

Right from its inception, Aegon Life has been garnering awards in various fields. Whether it is for HR practices, marketing campaigns or for its products, Aegon Life is recognised everywhere. In 2013, it received an award for ‘Best Product & Distribution Award’ at the Indian Life Insurance Award 2013 presented by EDGE Advisory Services. It has also been recognised with the ‘E-Business Leader Award’ at the Indian Insurance Awards in a row in the years 2013, 2014, 2015 and 2016. In 2016, the Service Quality Awards awarded Aegon Life for the ‘Best Service Quality Program’.

High claim settlement ratio

Maintaining its commitment to pay all genuine claims, while being careful about fraudulent claim requests, Aegon Life is known for easy claim settlements. It understands the need of having financial security during troubled times. Its standard claim process is fair and has had dependable results. Over the years, the claim settlement ratio for Aegon Life has improved considerably and has only gotten better. In the year 2016-2017, it was 97%.
The primary objective of Aegon Life is ensuring smooth claim settlement for you and your family, from the beginning till the last step.

ULIPs by Aegon Life

There are many ULIPs with various benefits to choose from. You can invest in six different funds with iInvest Insurance Plan or secure your children's future with Rising Star Insurance Plan. Apart from higher sum assured, the iMaximize Insurance Plan offers additional savings and income benefit too.
Aegon Life is one of the leading insurance companies in India and for all the good reason. To secure the future of your near and dear ones, get a ULIP from Aegon Life today.

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ULIPs by Aegon Life

 

 

Unit Linked Insurance Plans (ULIPs) from Aegon Life are your guide towards a safe future for your family, and to realise your life goals, without making concessions on either.

Aegon Life offers ULIPs with various benefits for you to choose from. If you are aiming to create wealth and gain from the advantage of a life cover, ULIPs from Aegon Life are beneficial for you. Two most popular and diligently designed products that offer comprehensive risk coverage with progressive fund choices are - iInvest and iMaximize plans.

iInvest

This is a simple, straightforward ULIP that helps you fulfil your security and investment needs. You are not levied with any premium allocation charges with iInvest thus, ensuring that 100% of the premium paid by you is invested in the plan. You have the flexibility of paying the premium at one go or regular intervals throughout the policy tenure.
With Aegon Life’s iInvest, you can choose the Lifestyle Portfolio Strategy or the Self-Managed Portfolio Strategy. The former is a pre-defined fund allocation route, like a buffet, which offers you a balanced mix of equity and debt funds to suit your needs. The latter is a la carte that gives you the option of switching between six different fund types at your will.

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iMaximize

 

As a loving parent, you want to be the tower of strength and support for your child, ensuring that their future plans stay unaffected even when you are not beside them. iMaximize is your perfect insurance-cum-investment plan, specially designed to secure your child’s financial future. You can choose between death benefit Option 1 or Option 2 when choosing the cover.
Option 1 assures a lump sum amount which is the higher of sum assured or fund value or 105% of premiums paid. On the other hand, Option 2 provides triple benefits in three stages. Your nominee will receive higher of sum assured or 105% of premiums paid. With this option, you also receive an added saving benefit with Aegon Life covering all future premiums. And lastly, every year, your nominee will receive an income equal to the annual premium of the plan.
Aegon Life ULIP plans have the capacity of bringing out the best for you and your loved ones. Investing in Aegon Life ULIPs is instant, effortless and the best investment decision you can make for your portfolio.

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What are the types of charges in ULIPs?

 

 

Eating out with your family and friends is a great way to have fun and bond. Imagine you are treating them to a lovely meal in a restaurant on your birthday. During the meal, the manager brings out a special cake, and everyone joins in to wish you. You are super delighted at being the center of attention. But at the end of the meal, when you receive the bill, you notice an additional charge levied on the cake. You assumed it was free, but the manager says otherwise. He points out to a notice in the restaurant that says: Birthday Cakes – Rs. 250. Now, this is not the ‘pleasant’ kind of surprise you expect on a birthday. This seemed a tad disappointing, but in the end, you pay for it since the message did not get your attention.

Same is the case with investments. A number of charges can be levied on investment funds. And as an investor, you must know about all these charges. Let’s find out the different types of charges in ULIPs.

  1. Premium Allocation Charge

    Premium Allocation Charge or PAC is a charge that is deducted upfront on your premium. Once these charges are deducted, the remaining amount is invested in the funds of your choice. This charge is deducted as a fixed percentage on the premium paid. For example, if your monthly premium is Rs. 20,000 and the PAC is 5%, Rs. 1,000 gets deducted from your premium and the remaining Rs. 19,000 is used for fund allocation.
    The deducted amount is used to take care of underwriting expenses and distributor fees. Also, remember that PAC is generally high during the first few years. The charges come down significantly thereafter.

  2. Fund management charge

    ULIPs offer you the freedom to invest in different types of funds based on your investment goals and risk appetite. The company manages your allocations to ensure you earn the best returns possible. And in order to manage these different funds, the insurance company charges a certain fee. This is known as the fund management charge.
    As an investor, it is important to remember that debt-oriented funds have lower fees compared to equity funds. But overall, the insurance company can charge a maximum of 1.35% per annum on the fund value as per IRDAI rules.

  3. Policy administration charge

    As an investor, you may not be aware, but there are many background charges involved in the management of your fund. For instance, insurance companies send regular reminders to their customers regarding the premium due date. Other expenses include the paperwork needed to maintain and update your fund in a timely manner. All these expenses come under policy administration charges. Most insurance companies charge the policy administration charge on a monthly basis. The charges can differ between different companies. For example, the charges can remain the same throughout the entire term, or they can change over time, based on the terms of your policy.

  4. Mortality charge

    Till now, we have discussed the different charges regarding the investment portion of the ULIP. The mortality charge, however, is related to the insurance segment. Mortality charges are levied by the insurance company for providing the life cover. The life cover of the ULIP offers financial compensation to your family in case of an eventuality before the policy term. In view of this compensation, the insurance company levies a mortality charge.
    This charge is applicable once every month. The amount you pay can depend on various factors such as your age, health condition and amount of coverage sought under the plan.

  5. Partial withdrawal charge

    Emergencies can spring up at any time. And at such times, you may not have the required funds at hand to meet these emergencies. One option at your disposal is a partial withdrawal from your ULIP.
    Yes, ULIPs offer you the opportunity to make a partial withdrawal of your funds from time to time. Some funds may offer an unlimited number of these withdrawals, but in many cases, the number of free withdrawals is limited. In such a case, you would have to pay a partial withdrawal charge to avail these funds. The actual amount to be paid can vary between different insurance companies, so make sure you find out how much your insurance provider charges for a partial withdrawal. Also, remember, this facility is available only after the minimum lock-in period of 5 years.

  6. Fund switching charge

    One of the best features about ULIPs is that you can choose the type of funds where you wish to invest. And if you want to switch from debt funds to equity funds (or vice versa), you have the freedom to do so. As an investor, you can make a limited number of switches, for free, during a year. But beyond this limit, you would have to pay a charge to make the switch. This is known as a fund switching charge and can cost you anywhere between Rs. 100 to Rs. 250 per switch.

  7. Premium discontinuance charge

    By now you know that ULIPs have a minimum lock-in period of 5 years. That means you cannot withdraw your money from the fund before this period is over. But in case you discontinue your payments during the first five years, the insurance company levies a discontinuance charge. This is also known as a surrender charge.
    The IRDAI has laid down strict guidelines regarding the maximum charge an insurance company can levy in such cases.

    Year of surrenderCharge 1st year6,000 2nd year5,000 3rd year4,000 4th year2,000 -->

     Year of surrender   Charge
     1st year                     6,000
     2nd year                    5,000
     3rd year                    4,000
     4th year                    2,000
    If you surrender from the fifth year onward, no charges would be levied.

ULIP is unique in the spectrum of investment products in the market. It offers both investment and insurance benefits in a single policy. As an investor, it is important you find out all the different charges applicable to a policy. Compare the charges levied by different insurance providers and select a policy most suitable to your needs. This way, you can minimise your costs and maximise your returns.

 

 

Things to Consider When Buying ULIPs

 

 

Imagine you have an important event to attend, and you need the perfect ensemble. It has to be the best you've ever purchased complementing the occasion. Now, you can't, by any means, pick up the first thing you lay your eyes on, can you? You have to get the one that fits the perfect picture in your mind. And to uncover that picture-perfect attire may even call for it to be customised!

The method of selecting a Unit Linked Insurance Plan (ULIP) is akin to choosing that impeccable ensemble. As a financial product, ULIPs offer insurance and investment that are essentials to every financial portfolio. But before you pick the ideal one for you, you need to tick the right boxes.

In a world where numerous investment products are vying for your attention, choosing the right one can be a bit of a bother. Although you may have well-meaning advice around you, more than necessary data may leave you confounded. Let's cut through the noise and look at some pointers you may want to consider when choosing a ULIP.

Do I know the product and my goals?

Have you done your research before opting for ULIPs? In some cases, new investors are not entirely aware of what they want to go in for, perhaps because of the jargon surrounding it or lack of accurate knowledge. Familiarising yourself with the product will ensure you will not be misled in the future.
Identify your objective of investing in the insurance plan. Are you seeking long-term wealth creation, resources for a comfortable retirement or improving your family's future? You may want to confirm that your answer is various financial goals and not just to 'cut down on taxes'.

How much must I be covered for?

Box office pundits opine that in some cases it's not moviemaking to be blamed if they bomb or fall short; the flaw more often than not lies in their budgets. The same applies to ULIPs. When you purchase a policy, what you may need to ensure is the sum assured that you pick out should be a considerable disbursement to aid your family to live the life you dreamed for them, despite the possibility that you might not be around to make it happen. To get a fair idea - an ideal sum assured amount is generally equal to 10 times the annual premium on the policy.

What is my risk appetite?

Calculate your risk tolerance. A long-familiar precept of investment is thus, the greater the risk, the better the returns. Your risk appetite precisely dictates the composition of your ULIP plan: complete debt, complete equity, or a meticulously designed blend of both. To help you determine your risk appetite, take into account factors such as your age, income, dependent family members and your financial goals.

How much am I willing to spend?

Acknowledging your objective and risk tolerance are the beginning steps to select a ULIP. You also need to know your spending capacity. Knowing how much you need to set aside for premiums can help you make wise decisions and ensure that forthcoming premiums do not leave your family budget in disarray.

How can I know more about the policy?

At this moment in time, customisation is the buzzword. From playlists to online shopping deals to search engine queries and more! A customised offering saves us time and effort in spotting distinctly what we're seeking with as much ease as possible. It cuts through the various layers and presents us with quick making decisions and the right knowledge. When purchasing a ULIP, ensure what you're purchasing is meeting your objectives accurately. Understanding the terms and conditions of the purchased ULIP well in advance can easily help you stay invested in it till you accomplish your purpose.

What kind of charges will I have to pay?

Economy flights get you from point A to point B. But if you're looking for a relaxing and memorable journey, you would have to be willing to upgrade for that comfort, especially if it's a long haul. That’s when you scour online for a good deal for a premium flight. ULIPs are accompanied by fees and charges that you need to comprehend and expect. Comparing various ULIPs and the list of charges attached to them can help you seek the right ULIP with competitive rates that don’t compromise on your returns.

Will I be able to switch between funds?

As soon as you begin with a ULIP, you will become aware of the numerous elements that determine how your money is apportioned to various funds, together with your market sentiment as an investor, the number of years you intend to stay invested and your risk tolerance. However, in the course of time and over the years, these things may fluctuate. Perhaps your financial goals will increase, or your risk appetite may decrease. Regardless of your future decisions, you will need to check on whether you can switch between funds, the number of times you can switch in a year, in addition to, the expense and ease of every switch.

Now that you know what you need to consider before purchasing a ULIP, you can safely ‘dot the I’s and cross the T’s’ and pay for a ULIP of your preference.
You know you would pay detailed attention to the stitching, the cloth, the texture, its appearance on you, the hue and the coordinated outfit in its entirety -- not merely on the cost -- before you put down your money for the ensemble. Similarly, when it comes to ensuring your family's welfare you know you would never make concessions or settle for half-price but instead choose the best plan and stay assured of their wellbeing.

 

 

How to invest in ULIPs as per your risk appetite?

 

 

A Unit Linked Insurance Plan or ULIP is a hybrid or an evolved version of life insurance which caters to the need of combining both – an insurance policy and an active investment opportunity. ULIPs offer a potentially higher rate of return along with tax benefits, and thus, have grown quite popular among many investors.

A portion of your premium is applied towards your life cover, and the rest of it is invested in a fund of your choice – equity or debt or a combination of both. This means that while there’s an exciting opportunity to reap higher returns within the existing framework of life insurance, there’s also a bit of risk involved in it.

Risk Appetite

By definition, risk appetite is the level of risk a person is prepared to take with his/ her money. In investment terms, it means how much you are prepared to gain or lose by investing a particular amount in a relatively volatile instrument. The rule of thumb says - the higher your appetite, the better are the chances of returns. While investing in debt instruments is considered safe, investing the same money in volatile stocks is considered riskier as it is dependent upon the ups and downs of the stock market.

ULIPs are Versatile

Every investor has a different appetite for risk, and rightly so. While there are people who look to keep their investments safe, there are many who prefer to take a bit of risk and attempt to maximise their returns. ULIPs are specifically designed to cater to varying needs of all kinds of investors.

There are policies which invest their corpus in debt instruments such as government bonds which ensure fixed and risk-free returns for the investors, and then there are some which invest their corpus in the stock market and try to reap maximum gains by exploiting the stock market’s movements. And that’s not just it! There are policies which invest the corpus in a mix of debt and equity instruments both mitigating the overall risk exposure.

Types of Funds

  1. Equity - These funds primarily invest the corpus in the equity market. They carry a medium to high-level of risk, and thus, are more likely to provide a higher return.
  2. Debt/ Fixed Income – These funds invest the corpus in bonds and fixed income securities. They carry low-risk, and likewise a lower but safe return.
  3. Money Market – These funds invest the corpus in bank deposits and other money market instruments. These too carry a low-risk and do not aim to make considerable gains. They are primarily designed for short-term investors.
  4. Balanced – These funds invest the corpus in a combination of debt and equity instruments. They mitigate the risk by preservation and appreciation of capital at the same time.

The 2 Guiding Factors

  1. The Investment Horizon

    If you’re looking to invest for a shorter duration of time, about 5-7 years, you should look for a policy which invests in Money Markets or Debt. Investing in equity-linked security for a shorter duration increases the risk substantially. A sudden crash in the stock market means there’s no coming back!
    However, if you are willing to give your investment a longer duration of time to dwell upon, typically 10-15 years, then you should go for Equity or Balanced funds. In the long-term, the effects of market fluctuations are greatly reduced, and the fund managers can generate higher returns. They work pretty much like mutual funds.

  2. The Investment Avenues

    If you are looking to invest some spare funds in a ULIP, the chances are that you’ll end up going for the Equity-Linked or Balanced Fund policies. The reason is backed by many studies. It has been observed that people with spare money are open to experimenting more often than not, and tend to have a higher risk taking capacity. It makes sense too!

    However, if you are investing in a ULIP with an objective to save money systematically, you should go for a Fixed Income fund or a Money Market fund. These types of ULIPs offer a moderate level of return and are safe. These policies will give you assured returns and are best for planning future milestones.

    Researches also suggest that ULIPs that invest in Equity or Balanced funds are highly popular among young salaried professionals. The reason is simple – you’re young, you have a long career ahead of you, and you can certainly take a fair level of risk as you grow. Businesspersons, on the other hand, are a bit sceptical towards taking an additional risk (apart from the risk that their own businesses contain), and thus they tend to prefer Fixed Income funds for longer durations such as 15-18 years.

    The risk appetite of a person largely depends on his age, his income, growth prospects, and major life goals. Choose a ULIP that suits your appetite and helps you plan your life goals!

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