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How To Manage ULIPs? Tips For New Investors

How To Manage ULIPs? Tips For New Investors

As a first-time investor, you have a multitude of questions on your mind. There are various options in the market to choose from, and a ULIP is a good option for first-time investors. Just like any other investment, ULIPs need proper management

What is a ULIP?

A unit linked insurance plan is a plan that provides you the double benefit of insurance along with investment simultaneously. A part of the regular premium payment goes towards a life cover, and the other part is invested in funds of your choice. ULIPs are also eligible for tax-saving under Section 80C and Section 10(10D) of the Income Tax Act. Moreover, they are one of the rare investments which are exempt from Long Term Capital Gains tax.

If you are looking for a ULIP that provides multiple options in terms of benefits and investments, Canara HSBC Oriental Bank of Commerce's Invest 4G plan could be a good choice for you. It provides three plan options based on protection and 7 options of unit linked funds to invest in. You can allocate your investment in any, all, or a combination of these funds.

Due to the dual advantage of investment plus insurance along with tax-saving benefits, ULIPs have gained a lot of popularity. To extract maximum benefits of ULIP, it is important to learn how to manage ULIP funds

Decide your life goals

You could have a variety of financial goals in life like paying for your child's higher education, buying property, taking an international vacation, etc. You cannot think about how to manage ULIP funds without having these goals in sight. Your fund allocations should be in line with the goal. For example, as a common practice, allocations are more equity-heavy in the beginning and mid-term. Since one of the benefits of ULIP is that it provides you with the option to switch from equity to debt at almost any time, you can switch to safer investments when the goal is nearing completion.

Measure your risk appetite

Higher risks can lead to higher returns, but not necessarily so. You need to evaluate if you have the ability to absorb risks, and if so, how much of a risk can you absorb. If you are expecting your income to increase steadily over the years, you can think of slowly allocating in more equity. However, if you would rather have a steadier and safer income flow, you can opt for balanced funds.

Optimizing Allocation

Asset allocation is basically investing across diverse asset classes. One of the best benefits of ULIP is that you can spread your risks and minimize losses as compared to investing in just a single asset class. The usual allocation in equity funds for ULIPs is 40%, which is why they are considered relatively safer. However, you can go for a high-risk high-return portfolio if your risk appetite matches it. Determine a rough risk to return ratio of your allocations and try to balance them accordingly

For multiple allocation options, you can consider Canara HSBC Oriental Bank of Commerce's Invest 4G plan. It offers a range of 7 unit linked funds.

  • India Multi-Cap Equity Fund
  • Emerging Leaders Equity Fund
  • Growth Plus Fund
  • Equity II Fund
  • Debt Fund
  • Balanced Plus Fund
  • Liquid Fund
Evaluation of Charges

The insurance company will deduct an amount from the premium before allocating it to funds. This deducted amount goes towards different charges like mortality charge, premium allocation charge, policy administration charges, and fund management charge. Some ULIPs even offer return of mortality charge when the policy matures. Calculating these charges will give you a good idea of how your money is being used.

Monitor the Market for Updates

When the policy matures, you receive the fund value. In order to make sure that this value is high, you need to keep track of market updates and performances of funds. That way, you can decide better on when and how to switch your allocations, when to take bigger risks, and when to play safe. Death benefits of ULIP are the higher of sum assured and fund value. A higher fund value can ensure higher financial security for your family upon your demise.

If you learn how to manage ULIP funds well, you can derive maximum benefits out of them. For new investors, a good ULIP fund and good management is only the beginning of better financial discipline and planning.

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Annual Income (In Lacs)


In order to understand ULIP NAV, you first need to understand how ULIPs work. In ULIPs, a portion of premium from different investors is accumulated to create one investment corpus. This money is invested in several different market instruments. So to divide the returns properly among all the investors, the fund manager divides the net asset value in to small units with a specific face value. NAV is the per market share value of a fund. To better understand the definition of NAV, take a look at the formula below -

Net Asset Value = [Assets-(Liabilities + Expenses)] / Outstanding Units

It's not risky to invest in ULIP if you chose a safer path. Risk factor in ULIPs depends on the investment option you choose. If you are not okay with sharp movements, then choosing a low risk investment is a better idea. For people with high risk appetite, it's good to choose equity funds while risk-averse investors can go for debt funds.

You can opt for settlement option if you want to take your fund value in periodic installments. With the settlement option, you can get your maturity amount in installment as per the frequency chosen by you over a maximum period of 5 years. You can choose complete withdrawal of fund value at any point of time. Although, you will not get any life cover during this period.

ULIPs are life insurance products that provide paths to invest. And just like other investment option, there's no guaranteed investment return in a ULIP. Although, if you like taking risks and want to earn more returns on your investment, then opt for equity funds.

At the time of maturity of ULIP policy, you will get the fund value on your prevailing NAV. Fund value is the number of units of policy multiplied by NAV (net asset value).

Value of the fund = Total units of policy x NAV (Net Asset Value)

Well, discontinuing your premium payment will disrupt your savings as well as financial goals. In such case, you can approach your insurance company and ask for the revival of discontinued policy within the stipulated timelines. Also, you will have to pay all the unpaid premiums.

ULIP plan is a combination of investment and insurance. Thus, one must hold this plan for a duration of at least 10 years so as to get investment benefits out of it. As an early exit will have its own consequences. ULIPs have a lock-in-period of 5 years. Thus, you may surrender your policy before the completion of 5 years, but you will be paid only after the end of 5 years.

Generally, minimum lock-in period for ULIP is 5 consecutive policy years. During this time period, if the policyholder discontinues or surrenders the policy, then he/she will not able to receive any payouts. Withdrawals are only allowed at the end of the lock-in period. In addition to this, if you surrender your policy before the lock-in period ends, then you will have to pay surrender charges as well. Also, it is advisable not to exit your plan after the completion of 5 years of lock-in period, because if you stay invested for a longer duration it will help you reap better benefits.

The amount that you pay towards the Unit Linked Insurance Policy is eligible for tax deduction as per Section 80C of the Income Tax Act, 1961. This means that the premium amount paid will be deducted under section 80C from your taxable income up to a maximum limit, which is currently ₹1.5 Lakhs. However, the aggregate amount of deductions under section 80C, section 80CCC and 80CCD (1) shall not, in any case, exceed ₹1.5 Lakhs. Also, upon the maturity of the policy, the payout amount you receive will be exempt from income tax, subject to the applicable provisions of Section 10(10D) of the Income Tax Act, 1961.

Here’re the following major benefits of buying ULIP

1. Tax Benefits – It helps you to reduce tax liabilities. This means you are liable to enjoy tax benefits on the premiums paid towards the policy as per Section 80C of the Income Tax Act.

2. Long-term growth– One of the major benefits of buying a ULIP plan is that it offers long-term benefits. ULIPs come with a lock-in period of 5 years which will keep you invested for a longer period.

3. Dual benefits – ULIPs not only offer life coverage but also come with a wide range of investment funds that will help you earn great returns. This includes balanced funds, debt funds or equity funds. You can invest in any of them depending on your need and risk appetite.

4. Flexibility – It gives you the flexibility to switch between funds basis your risk appetite. You could select multiple funds and different investment strategies.

5. Partial withdrawal option – It allows you to make partial withdrawal in case of any uncalled medical emergency or contingency after completion of lock-in period.

ULIP is a perfect investment option if you are looking for long term wealth creation. It could be buying your own house, a new car, going on a long vacation, or your child’s higher education or marriage, ULIP helps you to meet all your long-term financial goals. Moreover, it comes with a lock-in period of 5 years which keep you invested for a longer period and helps you earn better returns. The lock-in period is calculated from the date when the policy is issued.

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