ULIPs in recent years have become one of the preferred modes of investment for many people. This is mainly due to the dual benefits of investment and insurance that it offers in a single policy. Being a life insurance policy, getting life insurance cover along with the option to invest is a plus point. ULIP performance is also good when you opt for a long-term policy. If you are planning on investing in ULIP and want to know how you can get good returns on your investments, read on to know more.
A unit linked insurance plan is a type of life insurance policy that offers the policyholder two benefits: investment and insurance in the same policy. This policy allows you to grow your wealth over a period of time by investing in market-linked options. At the same time, it provides your loved ones with a financial cover from various life risks. This allows them to be financially safe, especially in your absence.
How does a ULIP work? The premium paid for the policy is used for 2 things: investing in market funds and providing life cover. Based on your risk appetite and what your life goal is, you can invest in either an equity fund or debt fund. The returns that you gain from your investments are added to your maturity benefits. In the event of your untimely demise, your family is provided with a death benefit, and your nominee gets the maturity benefit. The premium payments and maturity both get tax benefits under Section 80C and Section 10(10D) of the Income Tax Act.
How to get good returns?
While ULIPs provide good returns to the investor, you can ensure that the returns remain consistent with the help of these tips:
- Switch your investment
When you invest in a ULIP, you have the option of investing in two types of funds: equity and debt. If you opt for equity funds, your money is invested in stocks of companies listed in the market. Based on the capitalisation value of the company, the stocks offered could be small-cap, mid-cap or large-cap. Equity funds are riskier due to the nature of the market. However, they offer high returns. If you opt for debt funds, your money is invested in government bonds, securities, corporate bonds and other forms of cash and liquid markets. Debt funds have a low risk factor and offers low-to-medium returns.
It is always advised to invest in both the funds rather than just one fund. This is mainly due to the risk associated with equity funds. Investing in both funds ensures that you get returns from at least one fund without the risk of losing your investment. One way you can ensure consistent returns is by switching your investment. Switching essentially means reallocating your investment from one to another. This helps in balancing the risk factor.
- Opt for a long-term policy
ULIPs come with different durations. From 5-20 years, they are designed to serve requirements of each individual investor. If you invest for a duration of 5 or 10 years, that is considered a short-term investment. Based on your life goal, you should opt for a long-term policy. Not only does this help in gaining any lost returns, but it also helps in building a good corpus for your future. Opting for a short-term policy means that your investments are exposed to more risk. And, if you invest more in equity funds in a short-term policy, your returns could get dented heavily. Use the ULIP calculator from any insurer’s website to see how your returns would be in a long-term policy.
- Do a top-up premium
While a part of the premium that you pay for the policy is used for investment, your requirements or life goals could change any time. This would mean wanting more returns on your investment. One way you can get more returns is by investing more. This can be done with the help of a top-up premium. By topping up your existing premium, you can invest more money into the funds of your choice to get more returns.
These are just a few tips that you can follow to get good returns after you invest in a ULIP. If you are planning on investing in one, you can use the ULIP calculator to see how much you should invest and what your returns could be.