A Unit Linked Insurance Plan (ULIP) is an investment plus life insurance product. Due to its dual-benefits, you can safeguard your loved ones with the life cover component that it provides as well as accumulate wealth. Since a specific proportion of a ULIP plan can be investment-based, many of you might be sceptical to buy it due to the involvement of market risks. Irrespective of the fact that you hate market risks, you can invest in a ULIP plan for the growth of your funds with the help of these top five tips mentioned below:
- Invest at a young age
There might not be the right time to invest in a ULIP policy. However, investing at a young age in a ULIP policy can be beneficial. Since you can have a significant amount of time in your hands to generate more funds, the power of compounding comes into the picture at a young age. With compounding, you can earn interest on your returns of investment.
- Stay invested for a long time
A ULIP policy is a long-term investment, which has a lock-in period of five years. The long lock-in period allows investors to develop a savings habit and invest towards their life goals. It also discourages investors to dip into their ULIP fund, which in turn can help them earn substantial returns in the long run. If you can discipline yourself into staying invested for the long term, you can easily achieve all your life goals.
- Consider your risk appetite
As an investor, your risk appetite can depend on your current life stage and fluctuations of the market. For instance, your risk appetite can be relatively higher when you are young. Due to minimal financial responsibilities of the family, you can afford the risks of the market. After you cross specific milestones, such as marriage, parenthood, and retirement, your risk appetite can gradually decrease due to an increase in the financial responsibilities of dependents, such as a spouse, children, etc. Therefore, analyse your risk appetite carefully and invest in a ULIP policy accordingly.
- Choose the right ULIP fund
A ULIP policy can give you the opportunity to choose between the two main types of funds, which are as follows:
- Equity Funds
Under equity funds, you can receive returns based on market performance. When the market performs well, you can obtain relatively high ULIP returns.
- Debt Funds
Debt funds can provide you with low returns. However, it can be considered as a safe investment option as compared to equity funds.
- Opt for the switching feature
Although a ULIP policy is a market-linked product, you can secure your invested capital from the risks of the market. Since a ULIP policy can provide you with a switching feature, you can protect your money from market volatility as well as move your funds to safer investments when the market is down. Ideally, you should move your money to debt funds when the market is underperforming. To reap maximum returns, you should analyse your ULIP fund performance as well as keep a tab on the market scenario.
In a nutshell, market risks can be a significant part of your ULIP policy. The good news is that you can avoid the unwanted risks and make the most of a ULIP investment. Before investing in a ULIP primarily for the growth of your funds, you should consider your investment goals and risk tolerance. Moreover, consult a financial expert to ensure that your invested capital is not affected by your low risk-bearing capacity.