Saving with ULIPs: How to Invest in ULIPs during the Coronavirus Pandemic

 

Since the start of the pandemic in 2020, it seems like we are on a perennial rollercoaster ride. Markets all over the world are at their volatile best, with their absurd highs and rapid lows seeming utterly unrelated to the rampage of COVID-19.

During such times, it is normal for the average investor to feel jittery about parking their hard-earned money in unworthy instruments. This is where sound options like ULIP investment plans can help you mitigate risk while also instilling a sense of financial security.

Should You Invest Your Money During a Pandemic?

Whether we’re in the middle of a pandemic or not, you always need to grow your money through investments. Simply put, not doing anything with your money is not an option in today’s world.

Just remember these simple ground rules:  

1. Stick to the basics –

Don’t stray far from the fundamentals. Saving consistently, following your financial plan and building a diversified portfolio must remain at the top of your priority list.

2. Don’t panic –

Doomsday predictions will always abound. Stay invested and keep investing in small increments. The numbers consistently show that remaining invested over a longer duration, regardless of market performance, leads to significant gains.     

3. Opt for systematic plans –

One of the primary reasons that investors see significant savings with ULIP is because you can use SIPs and SWPs to invest and withdraw over a period of time. This allows you to ride out market fluctuations and uncertainties.  

ULIP Investment Planas Managed Portfolio

In today’s financial climate, ULIP investment plans arm investors with a flexible instrument that can be modified any number of times to both short- and long-term financial goals. Once you’ve learnt how to invest in ULIP plans, you can reap the benefits of having a professionally managed portfolio. After all, a well-managed portfolio can help you achieve your financial goals.

1. High-Risk Profile with Systematic Transfer –

Young investors with a longer investment timeline can choose ULIP investment plans with a heavy focus on equity funds (up to 100%). 

2. Medium Risk Profile with Auto Fund Rebalancing –

With this option, investors can decide on a ratio between debt and equity funds. The fund manager will balance out your investments every three months to reduce risk while keeping your ratio in mind.

3. Reducing Risk with Return Protector –

This is ideal for risk-averse investors. You can slowly start moving your money from equity funds to debt funds. Over time, the fund will start tilting towards the safer but lower returns from debt instruments.  

4. Low-Risk Profile with Safety Switch –

This can be used with any of the three options mentioned above. Systematic withdrawals will park your returns from the equity and debt schemes in liquid funds thus giving you immediate access to your savings with ULIP.

Remember, even as ULIPs have evolved to allow you to build a portfolio of your choice, they continue to provide these irresistible advantages:

• Tax-free switching between funds within a policy. All withdrawals made after a mandatory 5-year lock-in are also tax-free, for all annual investments below 10% of policy sum assured.
• Many ULIP investment plans offer bonus units at regular intervals to encourage you to stay invested.
• All investments up to 1.5 lakhs are tax-deductible under Section 80C of the Income Tax Act, 1961.

Is ULIP Investment Enough?

This is a common question that many investors attempt to answer. Once one has signed up for savings with ULIP, can we just stop looking at other avenues? The short answer is no. It’s always better to diversify your portfolio. A golden rule is to never keep all your eggs in one basket, especially during uncertain financial times.

1. Emergency Corpus –

With an ongoing pandemic, ensure that you always have an emergency corpus in a savings bank account or in easy to access liquid funds.

2. Health Insurance –

We have all heard horror stories about hospital expenses spiralling out of control within a short span of time. Invest in a high-quality health insurance plan that will take care of hospitalisation expenses for yourself and your loved ones.

3. Life Insurance

COVID is showing us every day just how little of our lives are really within our control. Even as you reap the benefits of savings with ULIP, a traditional term plan will provide you with the peace of mind that your family will be well taken care of in the event of an unforeseen catastrophe.

4. International Funds –

If you have the appetite for it, investing in pioneering industries in different geographies will reduce volatility in your portfolio due to the ups and downs in one market.

5. Precious metals –

You can hedge your bets with assets like gold. While these are traditionally very long-term investments, they come in handy when planning for mega-expenses like marriages.

Most importantly, remember to stay put. Markets tend to reward those who stick with them the longest.