A unit-linked insurance plan or ULIP is a single product that offers dual benefits of insurance and investment. This ensures that you are investing in a life goal while also ensuring insurance cover that comes in handy in the future.
As an investor, you have the choice of debt, hybrid funds, and equities among others to invest in. The way a unit-linked insurance plan works is simple. Like most insurance schemes, you would need to pay a certain amount as premium. The insurance firm then deducts a portion of this premium towards your insurance while the rest is invested in a range of funds.
Much like any other investment option, as a salaried person, you would have to assess your age, financial goals, and your aptitude and capacity for risk, apart from the investment horizon before you start investing.
Your earning capacity at present, your opportunities for growth and the likelihood of a better salary in the future all need to be assessed before you pick a ULIP. Investors come in all types -- while some are low-risk/risk-averse investors, there are others who are medium risk and a few are high-risk/aggressive investors. You can invest a part of your salary into one of the ULIP funds based on your risk appetite. For those with low to medium risk, investment in debt instruments may work well while for those with a high-risk appetite, equity funds are a good option. Equity funds offer higher returns over the long-term while those seeking stability may look at debt funds. There are also hybrid funds an investor can look at, where there is adequate asset allocation to ensure the risks of one type of assets are mitigated by the other.
While you assess your salary, you would also need to take into account your other commitments. Depending on your ability and freedom to invest, you can pick one of the ULIP funds for investment.
Your investment depends on which income level you belong to. Broadly categorising salary classes, you can consider three brackets: entry-level or beginner class, mid-level and senior executive category.
Entry-level salaries may not be very high but on the flip side, commitments are low. You could invest in equity ULIP funds which fetch high rewards. While the risk is high, the reward is also substantial.
But if you are an entry-level employee with a high level of responsibilities or financial commitments, you could consider a combination of equity and debt. You could think of an asset allocation fund, where the risk of one fund type is mitigated by the other.
If you are a mid-level employee, you are probably drawing an adequate level of income. The mid-income bracket can be a tricky one, because you may be earning well but also have a growing set of responsibilities and goals. You would need to balance your burgeoning responsibilities with your investment risk appetite. In such a scenario you could look at medium risk - such as a balanced or hybrid fund? You could consider investing a portion in equity and another in debt instruments.
If you are a senior-level executive who has a comfortable level of income as well as a safety net in the form of emergency funds etc, you could consider an equity fund. But if you are very senior and are approaching retirement and want to look at a steady income, you could consider a debt instrument fund.
Alongside your salary, it is important to consider your risk tolerance and preference to arrive at the right ULIP fund for investments.
You would also need to take into account the premium payment frequency and the policy term. ULIP funds offer different frequencies, from annual to monthly, quarterly or half-yearly. Depending on your salary and your ability to make payments, you can pick the annual or the monthly one. You could make use of an online ULIP premium calculator to help with the computation. One more aspect you need to consider as a salaried professional is the duration of your policy, also called the policy term. The term could be anywhere in the range of 10, 15 or 25 years, and you would need to plan your premium payments accordingly.
The biggest benefit offered in a unit-linked plan is fund switching. Even though you invest in one of the ULIP funds within a plan initially on the basis of your current salary or risk appetite, you can always switch to another fund within a plan. This option lets you exit a loss-making fund or choose a fund that is in line with your risk-taking ability and appetite. Typically, experts suggest fund switching as the investor moves towards the completion of the life goal to lower risks.
Summing up, you can pick a ULIP on the basis of your salary and your ability and tolerance for risk. You could also choose to pay premiums on a monthly, quarterly, half-yearly or annual basis, depending on how much leeway you have in your monthly income, after taking into account your goals and other financial commitments.
The Canara HSBC Oriental Bank of Commerce’s Invest 4G plan offers seven unit-linked funds to choose from. You also have the choice of four portfolio strategies, and can make partial withdrawals in case of a financial exigency. The flexibility of switching between fund options to tap into market movements or change in risk preferences is also yours, when you choose the Invest 4G plan.
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