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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.

Speak to an insurance specialist now!

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