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How to Catch Up with Your Wealth Goal with ULIP Investment

How to Catch Up with Your Wealth Goal with ULIP Investment

Meeting goals with ULIPs

Ever set yourself a goal and after a while felt that you need to do more to achieve it? Most wealth goals are like that easy to imagine, difficult to execute and even more difficult to continue. However, if you choose the right investment avenue, you might even get a boost in the right direction.

ULIP investments are one such option for you. It is the perfect investment solution for you if you cannot dedicate a lot of time to your investments. ULIPs give you the option for using portfolio management strategies to automatically adjust your portfolio to:

  • Make the most of market opportunities
  • Safeguard your returns
  • Ensure the safety of your invested or accumulated money

These are the three ingredients for you to make the most of any market-linked investment. However, with ULIPs you can be one step ahead. Also, regardless of which strategy you choose the following two factors will always make a difference,

Investing in ULIP for Market Opportunities

ULIPs like Invest 4G plans from Canara HSBC OBC Life Insurance you the option to choose strategies which will help you make the most of the market opportunities. The strategy you choose will depend on your mode of investment (premium payment) either monthly mode of investment or annual and other than a monthly mode of investment.

Monthly Mode of Investment

If you are paying premiums in monthly mode, you are already using rupee cost-benefit for your equity investment. So, you can add one more advantage to your portfolio by fixing the equity and debt fund allocation. This strategy will add the following advantages to your investment:

  • Move money from equity fund to debt when markets are performing well
  • Move money from debt fund to equity when equity markets are not doing well

You know that debt funds are fixed income instruments. Thus, the growth of investment in debt fund is slower but steadier. Whereas, equity funds are more volatile.

Fixing the ratio of debt to equity in your overall portfolio helps your money move to equity at market lows and move out at market highs. Thus, securing your gains from the equity market and as you stay invested take advantage of market opportunities.

Annual Mode of Investment

In case you are more comfortable investing once a year, you can use the systematic transfer option to effectively invest in an equity fund. But instead of putting all your annual investment for transfer to an equity fund, you should allocate a part to a debt fund. This will give you two advantages in the long run:

  • Your equity investment will leverage the rupee cost averaging
  • You will always have some money in debt funds to cash-in the rare market opportunities

For example, if you plan to invest Rs. 1 lakh every year, you can allocate 30%; i.e. Rs 30,000 to a debt fund. The remaining Rs 70,000 would go to a liquid fund and then gradually transferred to an equity fund in monthly instalments.

You can later use the money accumulated in the debt fund to invest in equity fund when equity markets are going through a downtrend. The debt fund allocation will also help you in the future if you urgently need the money for your expenses or goals.

You can choose a different allocation for debt funds in this strategy depending on your comfort with investment risk.

What is Rupee Cost Averaging?

When you invest a fixed sum of money frequently in equity markets or any market with price volatility, it gives you the advantage of rupee cost averaging. Rupee cost averaging is a safer method of investing in equity markets, especially if you are investing through mutual funds or ULIPs.

The advantage of rupee cost averaging is that your average cost of acquiring the assets is lower than the markets average price. Consider that you want to invest Rs. 10,000 every month in an equity fund:

rupee cost averaging

In six months you will accumulate 5520 units based on the prices above. Now if you estimate the average cost of your total units at the end of six months It is Rs. 9.55 per unit.

While the fund NAV is back to the same level where you began investing, your average cost of buying these units (Rs. 9.55) is less than the average NAV of the fund (Rs. 9.83).

This is rupee cost averaging and over a longer-term, you can keep your average cost of investment even lower.

Using Investment Boosters in ULIP Investments

Apart from the strategies to automatically manage your portfolio, ULP plans also offer support towards your wealth creation goal. For example, the Invest 4G plan has two boosters at work for investors – wealth booster and loyalty additions.

However, to take full advantage of these two boosters you need to ensure the following:

  • Stay invested for the long term, preferably 15 years or more
  • Invest regularly

Ideal Tenure of ULIP Investment

If you want to make the most of your ULIP investments, opt for the longest term possible. For example, if you are 30 years of age, you can easily opt for a 30 years ULIP plan. You have multiple advantages of doing so, including:

  • Gives your investment maximum time to grow
  • You will have ample opportunities to earn from market trends
  • Partial withdrawals will make sure your money is always available for you

Also, 30 years is an ideal tenure for the wealth boosters and guaranteed additions to maximize their impact on your portfolio.

Remember, that return on investment is a result of market factors, and cannot be controlled by the investor. But, as an investor you can ensure that you can make the most of it, by controlling the only factor which multiplies the money; i.e. time. The longer you can stick with your investment the better it’ll perform.

Speak to an insurance specialist now!

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