A guide to getting better returns with ULIP investments
22th January 2021
In this policy, the investment risk in the investment portfolio is borne by the policyholder.
ULIPs are investments that help your money grow while simultaneously offering you a life cover. Specifically, unit linked insurance plans are a hybrid investment and insurance product for the same premium. Part of your ULIP premium goes towards your life insurance. The latter part of it goes towards investing in market-linked investment products of your choice. The key to making the most of your ULIP investments is to formulate an investment strategy that can aid in maximizing your returns from your ULIP. Here are some tips that can help you get better returns from your ULIP investments.
1. Select your funds carefully
The funds you choose to invest in through your ULIP scheme are where part of your premiums will go each month. Market-linked products have the potential to underperform which is why you always have the option to switch between funds. With some ULIP plans like HDFC Life Click 2 Wealth ULIP, this switching is cost-free an unlimited amount of times. However, it's always better to simply pick funds you can remain invested in for the long haul without ever having to switch. The key to identifying good funds is looking at their historical returns, portfolio management history, and more forms of analysis.
2. Optimize your asset allocation
Asset allocation is the manner in which your investment portfolio is organized to balance risk with reward. Asset allocation is key to keeping your returns consistent even when some aspects of the market underperform. If your portfolio tilts too much toward one particular asset class, then it is at the whims of the market. This doesn’t mean you can’t have more of one particular asset than the other. However, it does rally for some amount of diversity in a portfolio. For instance, balancing an equity fund with a debt fund is considered to be a very simplistic way to optimize asset allocation.
3. Pay your premiums on time
When ULIP investments are defaulted on by not paying your premium, one’s investments move into a fund that has been discontinued. The mandatory lock-in period of ULIPs requires that you neither surrender your policy at this time nor avoid paying your premiums in a timely manner. In either of these cases, your investment is transferred to a discontinuance fund. In addition to not earning any returns from a discontinuance fund, the IRDAI has mandated that ‘discontinuance charges’ be applied in these situations. Suffice to say that if you want returns, it's vital to pay your premiums in a timely fashion.
4. Remain aware of how the market is behaving
Unlike pure savings instruments, ULIP investments do require some amount of market monitoring. You are the one who picks the funds to invest in and hence you have to keep an eye on their performance before it is too late. Ensure you monitor the market regularly to keep track of your funds’ performance and the returns you are generating. Monitoring the market can not only work to prevent loss but also increase returns. There may be clean opportunities to switch to more lucrative funds just as there are opportunities to leave funds that are falling.
5. Be Mindful of Life-stage Requirements
Your needs across your life stages can change based on personal requirements. Early on in your financial career, taking more risks is possible. Not only do you have fewer responsibilities, but time is on your side as well. If you mess up, perhaps you have a financial cushion provided by your caretakers to fall back on. Later in life, these benefits are not afforded to most people. Hence, switching their ULIP investments from risky options to safer options might be in their best interest. It might not be wise to stick with the same funds throughout your life as your financial needs are bound to change. HDFC Life Click 2 Wealth is aware of these life stage requirements which is why you also get the option to Systematically Transfer your funds to take advantage of Rupee Cost Averaging and grow your wealth.
With these simple steps, you can ensure that you make the most of your ULIP investments and earn optimal returns. The Click 2 Wealth ULIP by HDFC Life gives you market linked benefits along with insurance coverage as three different options — a single person life cover, premium waiver option, and golden years retirement planning option.
The Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender/withdraw the monies invested in Linked Insurance Products completely or partially till the end of fifth year.
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